With trade likely to emerge as the most contentious issue between India and the United States, New Delhi has signaled that it is moving to allay concerns of U.S. President Donald Trump, who has named India among countries that impose high tariffs.
The government will cut duties on a range of imports that could help increase American imports to India. Those include high end motorcycles and cars potentially benefiting American companies like Harley Davidson.
During an address to Republican lawmakers last week, Trump called India, along with China and Brazil, “tremendous tariff makers.” and pledged to put tariffs on countries that harm U.S. interests. He also had called India a “very big abuser of tariffs,” during his election campaign.
In a phone call between Trump and Indian Prime Minister Narendra Modi last Monday, the American president had stressed the importance of India moving toward a “fair bilateral trading relationship,” according to a White House statement.
With the United States being India’s largest trading partner, the threat of tariffs is a huge concern for New Delhi. Bilateral trade between the two countries in 2023 totaled almost $120 billion, with a surplus of $30 billion in India’s favor.
“These latest reductions in tariffs signal a policy shift that could enhance U.S. exports in sectors such as automobiles, technology and some components for the space sector,” according to Ajay Srivastava, founder of Global Trade Research Initiative, a think tank based in Delhi. “However, U.S. is a small exporter of these items to India so the benefits to American companies may not be huge.”
Trade is expected to be one of the top issues that will be discussed between Indian Prime Minister Modi and Trump, who are expected to meet this month.
"We don't want to give anybody any signal that we would like to be protectionist," Finance Secretary Tuhin Kanta Pandey told Reuters after the cut in duties was announced during India’s annual budget presentation on Saturday. "Our stance is that we don't want to increase protection."
But analysts say India’s tariff cuts are unlikely to allay the concerns of the Trump administration, which wants New Delhi to open its markets for a range of goods such as farm products, steel and oil. India's average tariffs are much higher compared to countries like Japan and China.
The close strategic partnership that India and the U.S. have built in recent years may not stave off friction on trade issues, say analysts.
“Lowering some tariffs is the symbolic approach. We have made some gestures but nowhere near what would satisfy Trump,” according to Manoj Joshi, distinguished fellow at the Observer Research Foundation in New Delhi. “On tariffs, I think the U.S. will put more pressure — after all, if Trump did not carve out exceptions for allies like Canada, why will he do it with India,” he questioned.
In his last week’s phone conversation with Modi, Trump also said that India should be increasing its “procurement of American-made security equipment.”
India has been the world’s largest arms importer in recent years, spending billions of dollars to modernize its military. While Russia was its biggest supplier for decades, Western countries such as France and the United States are now emerging as key suppliers.
“There is scope for India to buy more weapons from the U.S. of which fighter jets could be a component,” according to defense analyst Rahul Bedi. “That would help lower the trade tensions.”
India is in “wait and watch mode” after Trump imposed tariffs on Canada, Mexico and China, say analysts.
“The global trade environment has been plunged into uncertainty. We will just have to wait and see what actions are taken by Mr. Trump vis a vis India,” pointed out trade expert Srivastava. “India will adjust where it can, but it is totally uncharted territory and nobody can really plan for it.”
Friction on trade also erupted during Trump’s previous term as president when he terminated India’s designation as a developing nation that had allowed businesses to export hundreds of products duty-free to the United States. India had retaliated by raising duties on some American products.
