In the weeks leading up to Donald Trump’s inauguration, there was considerable anxiety across the world over what the US president-elect would do on tariffs. Trump has repeatedly spoken about imposing tariffs on countries such as Mexico, Canada and China. He has attacked India’s tariff structure, pointing specifically at the 100 per cent rate levied on some products. However, so far, days after the inauguration, there has been no policy action. While Trump is now reported to have said that tariffs on some countries will be imposed on February 1, there is uncertainty over how this will play out.
For India, the US is an important trade partner — in 2023-24, bilateral trade between the two countries was around $120 billion. Despite the current rhetoric in Washington, there is a clear consensus on maintaining and strengthening India-US relations. Only in October, the US and India signed an MoU to expand and diversify the critical minerals supply chain. The threat of levying tariffs may well only be a negotiating tool but the Indian government is mindful of possible changes in the contours of US policy. As per a report in this paper, the commerce ministry has begun holding inter-ministerial talks to prepare for likely changes in US trade policy that could involve tariffs. The Trump administration will, however, also offer opportunities. The America First trade policy memorandum talks about bilateral trade agreements. It says that the US trade representative “shall identify countries with which the US can negotiate agreements on a bilateral or sector-specific basis to obtain market access”. As per reports, during Trump’s first term as president, India and the US had discussed a trade deal.
India’s approach to trade agreements has been mixed. In recent years, while it has entered into pacts with countries like the UAE and Australia, it has also shied away from agreements such as the RCEP, and has not joined the trade pillar of the Indo-Pacific Economic Framework. While a bilateral agreement with the US should be explored, there are areas of concern. Trade deals may be linked to labour mobility, which is a complex issue and requires deft handling. There may also be concerns around intellectual property, labour markets, government procurement and data localisation, among others. Any such deal will necessarily involve reducing tariffs. India should take the lead here. It must undertake a broader and more comprehensive examination of its tariff structure and resist protectionism. Alongside, it must push through the EU and UK trade agreements, negotiations over which have been going on for some time now. It must also push through much-needed reforms to take advantage of the opportunities that a rapidly changing global environment may offer. The upcoming Union budget is an opportune moment for the government to take the first steps towards this end.
