US President-elect Donald Trump’s warning to India about reciprocating tariffs against Indian exports hints at a possible US trade policy, which does not differentiate between allies and rivals, if New Delhi does not reduce import duties on US goods.
The United States is India’s largest export destination and is one of the few countries in the world with which India has a trade surplus. In 2023-24, imports from the US were $42.2 billion, while exports to the US were $77.52 billion. India’s major exports to the US are IT, pharmaceutical products and textiles.
During Mr. Trump’s first term, he imposed high tariffs on Indian steel and aluminum, prompting India to retaliate against peanuts and apples from the US. In his rhetoric, he may follow his old model.
Even if India lowers its import tariffs in some sectors such as automobiles, the US is unlikely to match India’s competitive advantage. However, there are sectors like agriculture, seafood and poultry, where the economies of American businesses are huge and Indian farmers cannot match them.
If India opens its agricultural market to the US, it could crowd out Indian farmers, whose average land holdings are less than three acres compared to the US’s 464 acres. It will also destroy Indian farmers who are self-sufficient in food.
Even if the government uses tariffs as a way to protect local industries or farmers, it is best for the short term. The real protection of local industry is to make the country’s businessmen and farmers more competitive by helping them achieve economic standards.
Overheads such as cost of land, official rent seeking, and time and duration of litigation increase Indian production costs and require immediate attention. Government of India should initiate reforms to focus Indian businesses on their core line of business instead of turning them into real estate investors. Hence, India must become competitive to beat Mr. Trump at his own game.