US President Donald Trump’s abusing global trade by tariff retaliation with countries it has a trade deficit has raised much hue and cry. No matter, the magnitude of the trade deficit with India it is insignificant due to the low stake (5 percent), as compared to Vietnam and China.
The USA has been the biggest trading partner of India for decades. China, too, is one of the top two trading partners of India. But, the difference between the two is that the US is pivotal to India’s export boom and China is the trigger for imports, inculcating a wide trade deficit. Consequently, India is favored by a large trade surplus with the USA, in contrast to China which is held responsible for a wide trade deficit.
With the Trump administration emphasizing its America First policy, the USA has succumbed to tariffs as a weapon to rectify its trade deficit, instead of using economic means.
There are six major items which map out India-USA trade relations. India exports mainly diamonds and jewelry, textile and garments, drugs and pharmaceuticals, petroleum refinery products and electronic components. Together they accounted for 63.7 percent of India’s export basket to the USA in 2023-24.
The triggers in India’s export basket were diamonds and jewelry and textile and garments. Together they accounted for 24.8 percent of total exports to USA in 2023-24. Recently, the export of electronic components made a jump in the Indian basket of exports to USA. From a mere 3.9 percent share in 2021-22, it boomed to 13.5 percent in 2023-24.
By contrast, major products imported from the USA are crude petroleum oil, aircrafts and spacecrafts parts, electrical machinery and electronic goods.
India’s trade surplus with the USA soared to more than double the during last five years, despite Trump’s high tariffs on steel and aluminum and doing away with the GST scheme during his first term in office. Currently, the USA accounts for 17.8 percent of India’s global exports.
The crucial issue of Trump’s retaliatory tariff policy is how to curb India’s trade surplus and win political mileage among American voters. Will it jeopardize the favorable trade balance with India, leaving a concurrent impact on India’s overall exports and will India succumb to lower tariffs giving more space to USA products to adjust the wide trade balances?
Assuming the USA tariff retaliation follows by product group-wise, studies reveal that the most affected areas will be agriculture and related food product group, automobile, drugs and pharmaceuticals, diamonds and jewelry, electronic goods and the least affected areas are textiles and garments.
According to a study by GTRI, the tariff gulf between the two nations was highest in the case of agriculture, meat and processed foods, followed by automobile, diamonds and jewelry, drugs and pharmaceuticals, electronic goods.
**Tariff difference between USA and India in 2024**
Product
Weighted Av tariff faced by USA in India (%)
Weighted Av tariff faced by India in USA (%)
Tariff difference (%)
Agriculture/meat/proc.food
37.66
5.29
3.37
Automobile
24.14
1.05
23.10
Chem/Pharmaceutical
9.68
1.06
8.63
Electrical/Tel/Electronic
7.64
0.41
7.24
Diamond/jewelry
15.45
2.12
13.32
Textile/Garment
10.37
8.99
1.37
Ore/Mineral/Petroleum
2.31
6.67
– 4.36
Total
7.67
2.79
4.88
Source: Global Trade Research Institute (GTRI)
Incidentally, there is some solace if tariff retaliation is made in accordance to product group-wise. While textile and garment, the second biggest item group in India’s export basket to the USA (12.1 percent in 2023-24), the attracts minimal tariff differences, viz, 1.37 percent, agriculture and related food products and automobile, which attract higher tariff differences, and do not pitch for major stakes in the export basket to the USA.
India is the third biggest exporter of garments to the USA, after China and Vietnam. Logically, garments from China and Vietnam do not pose a threat to India, as Indian garments have different market segments, which mostly feeds the casual wear market, unlike China. Indian garments are popular in the USA due to combination of factors like intricate design, skilled craftsmanship, low prices, large variety of styles and growing ethnic design and fashions.
Another aspect in favor of India in relation to retaliatory tariffs is that even though diamonds and jewelry attract higher tariff differences, viz, 13.32 percent, the USA does not have potential to manufacture indigenously the diamonds and jewelry in accordance to American requirements and design tastes. Diamonds and jewelry require special artisan skills, which Indian iconic labour has adopted over decades.
Hence, In these two product groups, Trump’s high tariffs could prove a boomerang, leaving American consumers in dismay facing higher prices.
India is the fourth biggest exporter of pharmaceutical products to the USA. In 2023, it accounted for 5.4 percent of total imports of pharmaceutical products in the USA, which in terms of tariff differences, is 8.69 percent.
Notwithstanding, the characteristics of the American drug market is that the US relies on standard prescriptions like antibiotics, which are predominantly sourced from developing nations where production costs are low, according to Coalition for a Prosperous America.
Nevertheless, the trade weighted average tariff difference between the USA and India for all product group, is 4.9 percent, according to the GTRI study.
Nonetheless, the USA has been the driving force for progressive growth in India’s external economy. In addition to being the biggest export destination for merchandise products, the USA has emerged pivotal to service exports and the export of skilled human resources, such as IT talents. Service exports also showed strong growth, spearheaded by software exports, so much so that service exports excelled merchandise exports in November 2024.
In 2023-24, India exported software worth US$190.7 billion to the USA, accounting for 54 percent of total software exports from India.
In other words, the USA played a key role in boosting GDP growth through India’s export segment, notwithstanding manufacturing striving for survival.
Against these backdrops, any counter retaliation by India would be ill advised for the growth of India–USA relations, amidst the turmoil of global trade.