Introduction

The United States (US) ranks as the biggest trade partner and leading investor for India, with an annual bilateral trade between both countries crossing 118.2 billion US dollars worth of goods and services in FY 2023-24. This includes huge investments in sectors such as energy, technology, and manufacturing. The economic policies of the US administration have a direct influence on India’s trade, market and overall economy.

In this piece, the author has evaluated and analysed the impact of Trump’s re-election on India-US trade relations and the potential repercussions this election will have on the Indian market and economy. The author has also examined the possible challenges and opportunities that India might encounter in its transition from the Biden to the Trump administration. Moreover, the author has analysed the new protectionist tariff structure of the Trump administration and its possible repercussions on the US-India trade flows.

April 2- Liberation Day

President Trump wrote on March 20, 2025 on the social media platform Truth that “April 2nd is Liberation Day in America!”. He was referring to the policy of “Reciprocal Tariffs”. This policy has already come into force and covers various countries, including India under its ambit. This policy of the US has targeted both its foes and friends. On 2nd April, the US imposed 27% tariffs on Indian goods under this policy.

In India, the electronic sector along with steel and aluminium goods, has been hit the hardest by these tariffs. On the other hand, sectors such as Pharmaceuticals, lumber, semiconductor and energy products have not been subjected to tariffs under this new policy. This has created anxiety both in Washington and New Delhi as it is considered one of the biggest expansions of tariffs in the US history.

In March 2025, sensing tensions and to avoid the US’s reciprocal tariffs, the Indian administration decided to reduce tariffs on certain American goods such as motorcycles and Bourbon whiskey. However, this step of India was not able to deter the increase in tariffs on Indian goods under the US’s new tariff structure.

Post Trump’s Re-election

The economic policy of the major parties in the US– Democrats and Republicans varies on a number of grounds. Under the Biden administration, the bilateral trade between the countries was advancing gradually and the focus of the US was on clean energy, improving domestic manufacturing and limiting US’s reliance on global supply chains. Moreover, QUAD (a partnership between India, US, Australia and Japan) materialised in September 2024 and the bilateral trade between both countries reached an all-time high.

By resolution of seven outstanding World Trade Organisation (WTO) disputes by the Biden administration and elimination of the Section 232 tariffs against steel and aluminium products, India got access to the US market. Biden positioned India as a key partner in countering the influence of China in the region and even retained and increased various tariffs against China, as shown in Figure 1.1.

Figure 1.1: Tariffs retained and increased against China by Biden

Credit: Council on Energy, Environment and Water

In contrast to the Trump administration, the Biden administration was comparatively lenient in imposing tariffs on various imported goods from India. With the change in the government, a transition can be seen from Biden’s policy of strategic and multilateral partnership to Trump’s protectionist trade policies.

Trump’s Re-election and its Impact on India-US Trade Flows

In the first tenure of Donald Trump, there was a rise in arms trade between both the countries. It is quite evident that in his second tenure as well, the Trump administration will facilitate an increase in arms sales to India. Moreover, the US sees China as a potential competitor and the “China One plus” strategy could benefit India by opening room for trade between the countries. Both nations have a common goal of countering China’s influence in the Indo-Pacific. Thus, with the coming of the Trump administration, there are chances that the trade and investment between both countries will rise.

India is highly dependent on the US economic policies as it is India’s largest trading partner, whereas India ranks 10th for the US (Figure 1.1). The reliance can further be emphasised from the fact that a notable trade deficit exists between the countries that favours India in economic terms. The reason why India charges high tariffs is that its domestic industry is still developing and needs high protection.

Figure 1.2: Ranking of Trading Partners of India and US (As per Year 2024)

Credit: CNN Business

However, the Trump administration is against the trade surplus that India enjoys in the present trade between the countries. This has resulted in the imposition of higher trade tariffs by the Trump administration on Indian goods as part of its Reciprocal Policy. Agricultural goods, automobiles, electronics, chemicals, plastics and machinery are key sectors which have high tariff differential and will be impacted the most with the implementation of this policy.

India might impose retaliatory tariffs on certain US products, as seen during the first tenure of Trump when the US administration imposed increased tariffs on steel and aluminium imports from various countries, including India. At that time, India adopted retaliatory actions, however, the relations between countries have improved and the chances of India adopting retaliatory measures are low as this will only have a detrimental effect for the country by hampering the potential trade.

The imposition of the higher reciprocal tariffs on imported goods by the US administration would indirectly result in cost inflation in the US economy, especially in the short term. As a consequence, there will be a negative impact on the Indian economy, especially in labour intensive sectors where the profit margins are really low. Trump’s tariff policy could also lead to a recession in both the US and global markets as a consequence of the retaliatory measures imposed by other countries. Thus, the Indian economy might have to suffer from high inflation in the US economy and a global recession.

Suggestions

India is one of the strategic trade partners of the US in the Asia-Pacific region. It is in the interest of both countries to resolve their trade disputes and enhance cooperation. The US considers India as an alternative supplier and potential market of clean energy that can replace China. An increase in trade sanctions against China under the Trump Presidency has created an opportunity for India to act as an alternative supplier and market in various sectors. Thus, it becomes crucial for India to grab the opportunity and build stronger trade relations with the US.

Though India imposes greater tariffs on a weighted average aggregate basis, however, in the practical sense, it is much lower. The tensions can be resolved by rationalising some of the industrial and manufacturing tariffs on the goods as around 95% of the bilateral trade between the countries is related to manufactured goods on which the trade differential is just 3.3% (Figure 1.3). This will also allow India to escape from the repercussions of the reciprocal tariff policy of the Trump administration.

Figure 1.3: India-U.S. Tariff Comparison

Credit: Global Trade Research Initiative (GTRI)

Furthermore, India has Free Trade Agreements (FTAs) with three countries– Japan, South Korea and ASEAN countries. India imports 90% of its industrial goods from these countries at zero tariff. This same can be offered to the US. India should negotiate with the US to open up the entire industrial goods segment at zero tariff. This will ultimately benefit both countries by tilting trade opportunities in favour of India and by considering the US demand to balance the trade differential. Thus, India should modify its trade supply and focus on its manufacturing sector to attenuate the potential trade disputes that may arise.

Conclusion

Trump’s re-election and protectionist policies have created new challenges and opportunities for India. Sectors such as the automobile and electronics have been hit the hardest under the new tariff structure. The uncertainty and unpredictability attached to Trump’s administration would materially affect Indian markets and economy as their objective will be to open the Indian economy for US businesses. Under the Trump administration, the Indian and global markets would remain volatile. Thus, India needs to adopt a balanced approach to effectively sail through the changes that have cropped with the re-election of Donald Trump and the US’s new protectionist policy. India by devising effective policies, as highlighted above, can achieve economic stability while effectively dealing with the instability brought by Trumponomics.

(This post has been authored by Anureet Kaur, a 2nd-year student at RGNUL, Patiala.)

CITE AS: Anureet Kaur, ‘Evaluating the Impact of Trump’s Re-election and his Reciprocal Policy on India-US Trade Flows’ (The Contemporary Law Forum, 12 May 2025) <https://tclf.in/2025/05/12/evaluating-the-impact-of-trumps-re-election-and-his-reciprocal-policy-on-india-us-trade-flows/>date of access.