The Donald Trump presidency in the US could be a positive for India on the trade front if it plays its cards well, and is ready to take up the opportunities that a speeding up of the realignment of the global supply chains may throw up.
Trump’s statements in the run up to the elections have been critical of the US’s low import tariffs vis-a-vis its trade partners. This, he highlighted, have enabled the world to find a ready market in the US, and the country to run huge trade deficits with major economies. The trade-weighted average import tariff rate for industrial goods in the US is just 2%. About 94% of US merchandise imports are industrial goods, and half of these have duty-free access to the country.
During the campaign, Trump announced a plan to raise import duties to 20% across the board and put a 60% duty on Chinese imports. On some products like electric vehicles he even talked of 100% duty.
The US is the second largest exporter in the world behind China, but is the largest importer. According to estimates its trade deficit of the US in goods and services in 2023 was $ 773 billion with exports of $ 3.0 trillion and imports of around $ 3.8 trillion.
“We (India) has to be ready for a deal with the US before across the board tariff hikes upends our exports to the US,” Partner-Tax and Economic Policy (International Trade), EY India Agneaswar Sen said
“When he (Trump) pushes up tariffs he is looking for a deal. We have to be ready to give concessions on things that matter to him, maybe agriculture products like nuts which they are trying to sell to India,” he added.
The US is the most lucrative market for Indian exports. In 2023-24 total merchandise trade between India and the US was $ 119 billion. India’s exports were $ 77.5 billion and imports $ 42.1 billion resulting in a surplus of $ 35 billion. Among the top 10 trading partners, the US is the only one with which India runs a trade surplus. Added to the goods trade is the massive services trade between the two countries. Services exports to the US were about $ 36.3 billion in 2023.
The US could impose higher tariffs on Indian goodslike automobiles, textiles, pharmaceuticals, and wines, which could make Indian exports less competitive, and impact forex gains, founder of Global Trade Research Initiative Ajay Srivastava said.
Either tariff concessions could be negotiated between India and the US or one could see retaliatory tariffs by India, setting off trade disputes. Something similar happened in 2018 when the earlier Trump administration raised duties on steel and aluminium for all countries including India. This prompted retaliatory duties and WTO disputes. Last year both sides ended all seven disputes at the WTO after negotiations.
“Tariff war will be dangerous for India,” director general and CEO of Federation of Indian Export Organisations Ajay Sahai said. While duties may go up across the board, Trump has singled out China for even higher duties.
“As the U.S. intensifies its stance on China, new opportunities may open for Indian exporters to fill gaps left by restricted Chinese imports,” Srivastava said.
On the services side, Trump has been critical of outsourcing. “Given that over 80% of India’s IT export earnings come from the U.S., stricter policies on outsourcing could significantly impact India’s IT sector. H-1B visas essential for Indian professionals in the U.S., could also be affected,” he said.
This in turn could accelerate the move by more and more companies to set up or expand their global capability centres in India, Sahai said.
In his first speech after the results Trump said, “I’m not going to start a war. I’m going to stop wars.”
“If it leads to the resolution of the Russia-Ukraine and Israel-Gaza wars, it could significantly ease geopolitical tensions which will be good for world trade and drive down energy prices by lifting sanctions on Russia,” Srivastava said.
India-US have a relationship partnership and there is a possibility of greater cooperation between the two countries in defence, maritime, space and hydrocarbons which will be a positive, FIEO CEO said.
Sahai is of the view that the China-plus-one policy of the US might be accelerated under Trump and this could spell some gains on the investment front, though not in core manufacturing but in services and some high-technology products like semiconductors.
Under Trump, subsidies for US manufacturing are likely to increase, especially through policies like the Inflation Reduction Act, which supports local production. His protectionist approach could lead to more US industry support, possibly sidestepping WTO rules and setting an example for other countries to boost their domestic industries. This could impact world Foreign Direct Investment (FDI) flows.
The US is the third biggest source of Foreign Direct Investment (FDI) in India. Since 2000 the FDI routed from the US stands at $ 66.7 billion which is 10% of the total. Other investments by American companies may have come through other geographies like Europe and Mauritius.
“We must be ready for a trade deal that is attractive to the US while not just protecting our current interests but creating newer ones. India will do well to be fully prepared and negotiate an FTA with the US. We will have to be ready to discuss a wide range of issues that will be put on the table,” EY’s Sen said.
From: financialexpress
Financial News
