How Will Trump's Second Term Affect U.S.-India Trade Relations?

As Donald Trump begins his second term on January 22, 2025, the dynamics of U.S.-India trade relations are under scrutiny. Experts are advocating for the exclusion of India from the proposed tariffs that Trump has suggested imposing on imports, highlighting the strong trade ties between the two nations, which differ significantly from those with China [fe76e16e].

Since the early 1990s, India-U.S. goods trade has expanded dramatically, growing over 20 times to exceed $120 billion. U.S. exports to India have experienced a compound annual growth rate (CAGR) of approximately 12% from 1992 to 2018, while imports have grown at around 11% during the same period. This growth underscores the deepening economic relationship between the two countries [fe76e16e].

In addition to goods, the services trade has remained balanced, with a consistent U.S. deficit of about $7 billion over the last decade. This stability in trade dynamics positions India as a long-term economic and geopolitical ally for the United States, contrasting sharply with the more contentious relationship the U.S. has with China [fe76e16e].

In light of these developments, the Indian government is under pressure to lower import tariffs on key raw materials and intermediate goods to enhance local manufacturing capabilities. This move is seen as essential for India to maintain its competitive edge amid rising trade tensions, particularly with the United States [8510d403].

Experts are advocating for the extension of existing Production-Linked Incentive (PLI) schemes and the introduction of new incentives targeting advanced manufacturing sectors. Industry chambers have recommended implementing zero duty on essential imports, including coking coal, telecom products, and capital goods for defense, to support domestic industries [8510d403].

The proposed DESH Act is viewed as a potential catalyst for attracting investments into India’s manufacturing sector, further enhancing its resilience against global trade fluctuations. Additionally, experts emphasize the importance of building local capacities in technology sectors to prepare for ongoing global trade tensions [8510d403].

As the global economic landscape continues to shift, particularly with the looming threat of U.S. tariffs on imports from BRICS nations, India's proactive measures to lower import tariffs and incentivize local manufacturing could play a crucial role in navigating these challenges [45ed5088].

The interplay between Trump's tariff policies and India's response will be pivotal in shaping the future of trade relations and economic growth in the region. As India seeks to enhance its manufacturing capabilities, the outcomes of these initiatives will be closely monitored by industry stakeholders and policymakers alike [8510d403].

Moreover, Kenneth I. Juster and Mark Linscott argue for a comprehensive U.S.-India trade deal, noting that the trade deficit between the two nations exceeded $45 billion in 2022. They highlight that Prime Minister Modi's high tariffs are designed to protect domestic industries but may hinder potential trade agreements [8f8cfcb8].

Previous attempts at establishing trade agreements have faltered, and the expiration of Generalized System of Preferences (GSP) benefits for India in March 2019 has further complicated relations. However, India has successfully signed trade deals with Australia, the UAE, and the European Free Trade Association (EFTA), showcasing its commitment to enhancing trade ties [8f8cfcb8].

As the U.S. seeks to bolster its economic influence in the Indo-Pacific region to counter China's dominance, both Trump and Modi are encouraged to pursue a significant trade arrangement. Potential areas for collaboration include technology, energy, and healthcare, which could solidify India's role as a vital supply chain hub [8f8cfcb8]. Political will from both leaders is deemed essential for the success of any trade deal, marking a pivotal moment in U.S.-India relations [8f8cfcb8].