Indian Prime Minister Narendra Modi is scheduled to visit the United States on 12th February 2025. Earlier, PM Modi congratulated President Trump over a phone call on 27th February highlighting the shared commitment towards global peace and security. Shortly after their call, Trump criticized India along with the BRICS bloc as ‘tremendous tariff-makers’. During his presidential campaign, Trump had ridiculed India terming it as a ‘very-big abuser’ of trade practices via-a-vis Washington.
Given that Trump has imposed a 25% tariff on imports from Canada and Mexico (paused for the next 30 days) and 10% on Chinese goods, the three countries are likely to retaliate that may escalate into a global trade war. India is not likely to remain immune from its implications. However, the consequences for New Delhi are uncertain now but does have the ability to reshape India-US ties under Trump 2.0. The question that arises now- is India next?
Tariff War and Trump 1.0 for India
In March 2018, President Trump had imposed 25% on steel and 10% tariffs on aluminum imported from India. This led to the Indian steel products export to the US fall by 46% subsequently. In response, New Delhi filed a complaint at the World Trade Organization (WTO) in May 2018 and imposed tariffs on $10.6 billion worth of US exports including artemia, chickpeas, lentils, boric acid, motorcycles and rudder equipment. The additional custom duty ranged from 10 to 15% with an extreme of 50% on motorcycles. Despite such retaliatory measures, India did not act on it before June 2019 after the Trump administration removed it from the US GSP Program of which New Delhi was a part since 1975.
What escalated in terms of the trade war between United States and India was stuffed by the rising imports of defense products by New Delhi in 2019. Trump administration elevated India to the Tier 1 Strategic Trade Authorization (STA) license exception in 2018. This led to an increase in Indian procurement of defense products to $8 billion in 2019. New Delhi and Washington also signed the Basic Exchange and Cooperation Agreement for Geospatial Cooperation (BECA) in October 2020 and Communications Compatibility and Security Agreement (COMCASA) in 2018. The two countries formed a strategic partnership, but other choke points persisted including Trump’s stance on H1B visa and a balancing act in its relations with Pakistan.
Trump 2.0 tariffs and Implications for India
The Trade Story
At the outset of his second term, Trump threatened to impose 100% tariffs on BRICS nations if they move forward to creating an alternative to US dollar. Immediately, as a precautionary measure, India reduced custom duty on Harley Davidson bikes by 10% alongside cars and smartphone parts imported from the US. However, the evolving trade story is deeper than the outliers. As per the report by the office of the United States Trade Representative, the US trade deficit with India was $45.7 billion in 2022, despite an increase of 17.9% in US goods export and 40% in export of services from 2021.
Between 2023-2024, India exported goods worth $77.5 billion to the US but its import from the US only witnessed a climb of 6%, raising concerns towards trade deficit that may quickly escalate into a tariff war under Trump 2.0. Considering the US was India’s largest trade partner with exports of $77.4 billion in 2024, the implementation of tariffs on Indian goods will have a major impact on the Indian economy. Whereas Indian imports from the US include crude petroleum, precious stones, and military equipment among others, its exports comprise petroleum products, pharmaceuticals, telecom instruments and electronic parts.
Defense Procurement
To alleviate the trade deficit, Trump may ask India to increase its purchase of defense equipment. For the last 20 years, Russia has supplied 65% of India’s weapon demands. Amid the Russia-Ukraine conflict and India seeking a pivot away from Moscow, the latter offered Karmov helicopters, Sukhoi and MiG fighter jets to New Delhi along with an assurance to build manufacturing basis in India. Yet, India has already started to diversify its defense equipment.
Back in 2023, India and the US signed a deal allowing the production of jet engines in India for military aircraft under the collaboration of General Electric and Hindustan Aeronautics. Additionally, India will procure US-made MQ-9B SeaGuardian drones. However, much depends on the prices offered by the US companies and on Indian leadership’s willingness to dissuade from Russia given that New Delhi is expected to spend at least $100 billion in defense procurement in the next 10 years.
Energy Supply
Similarly, Trump may demand India to increase its purchase of American energy. Being one of the world’s largest importers of crude oil with a predicted consumption rise of 7.2 MBPD by 2030, the US till August 2024 was the 5th largest supplier of oil to India. Due to the Russia-Ukraine conflict, oil exports from Moscow to India already dropped by 55% in November 2024 with a total 11% month-on-month decline. This was majorly because of the supply-chain disruptions, embargo by G7 nations on Russian crude oil and the introduction of $60 price cap in 2022.
Tensions in West Asia have already penetrated into Indian oil imports from Iran. Now that Trump has regained office, the US would directly compete with countries like Iraq, Saudi Arabia and the UAE to fulfill India’s energy requirements. As per recent reports, Angola has replaced the US to be the 5th largest supplier of oil in January 2025. In spite of the availability in supply of varied grades of crude oil in the US, it is unlikely to become a key trading partner in the energy sector to India which may further trickle into Trump utilizing the threat of tariffs to at least increase the share of exports to New Delhi from the current 7%.
Pharmaceutical Sector
Washington imports 31% of total Indian pharmaceutical products which surged by 11% in 2024. These products include Medicaments, Vaccines, surgical items and extract of glands or organs. The importance of Indian drugs to the US was witnessed when in 2020, Trump spoke to PM Modi asking India to supply anti-malarial medicines at the earliest though with an issuance of silent threat. The request was made amid India’s ban on the export of the anti-malarial drug due to its stockpiling by nations that would’ve created supply-chain disruptions.
There is a prevailing optimism among the Indian pharma industry that under Trump 2.0 the proposed Biosecure Act that may benefit Indian contract development and manufacturing organizations could pass in the US Congress. Yet, threats have emerged from an increase in compliance costs by the US FDA, and the creation of more local manufacturing hubs. Moreover, Trump can intensify the tariffs if his rules are not followed that risk global price volatility together with rigorous import rules for the pharma industry.
Policy Choices to Mitigate Uncertainty for India
Cooperate rather than Confront
Indian policy options range from firmly retaliating with equal measures to supporting consultation with the Trump administration if tariffs are levied. The budget of 2025 much explains that India wants to cooperate with the US rather than confront it. The slash or cut in import duties with 8 tariff rates on industrial goods including a zero rate is a move that could be welcomed by the US. These changes suggest that India’s average trade tariffs range are down from 11.65% to 10.66%. Although these are marginal changes, they may help in diluting the perception of Indian protectionist policies.
Engage with Optimistic Undertones
As pre-emptive measures, India should continue to engage with the US on defense procurement as Trump has recurrently asked New Delhi to expand its military import profile from Washington. This may for the time being mute Trump’s demand on India to increase imports of energy products from the US. Trump can have a less aggressive posture against Russia but is likely to persist with the embargo put forth by G7 countries on Russian exports. Oil minister Hardeep Singh Puri has emphasized that going forward India is likely to boost purchases of US oil and gas. Such optimistic undertones by the Modi administration may for the time being de-escalate the pressure put forth by the US. Additionally, India may diversify its import profile with the US by buying soybean, dairy, vehicles, aircraft and medical instruments.
Leverage Strategic Partnership
Despite Trump’s reproving statements on other nations, his first tenure as President has taught India that he tends to overlook territorial aggression and has an aversion to foreign military conflicts. This was readily noticed during the Doklam Crisis in 2017 and skirmishes by China against India in 2020. India today stands at the cusp of regional instability with an unfriendly neighbourhood. Therefore, it is important that India leverages its strategic partnership with the US via the lens of economic transactionalism. Towards this end, trade liberalization and initiation of talks regarding free-trade agreements with the US that could make India an alternative investment hub in Asia are important. Previously, during Trump’s first stint, Vietnam benefitted from such policy choices vis-à-vis India. With a strong leadership and government, India can therefore resist political gridlocks that guided coalition governments in the past. Furthermore, in the time of leadership’s influence on foreign policy of a country, PM Modi and Trump can extend their bonhomie but this may also require favouring Trump’s personal goals that could allow him to be a point of relevance in the US unremittingly. For now, India should continue with its wait-and-watch policy towards the Trump 2.0 administration.
[Photo by Dan Scavino, via Wikimedia Common]
The views and opinions expressed in this article are those of the author.
Prashant Rastogi is a PhD Candidate at the Jindal School of International Affairs (JSIA), O.P. Jindal Global University and a Senior Analyst with Control Risks.
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