Donald Trump has once again emphasised that reciprocity will be the cornerstone of his administration’s trade policy—a sentiment his commerce secretary pick Howard Lutnick recently echoed. The United States’ ambassador to India, Eric Garcetti, also reiterated that India has the “highest tariffs” among major economies. These repeated assertions have understandably caused speculation in New Delhi, given that Washington is among its largest trading partners and a country with which it enjoys a very high trade surplus.
How does Trump view trade reciprocity? He is an unabashed advocate of tariffs, often describing them as “beautiful.” Historically, Republican administrations have been viewed favourably in New Delhi, considered less intrusive and more accommodating in comparison to Democrats. This optimism, however, is being tempered by recent points of contention – such as Sikh separatist Gurpatwant Singh Pannun, the Hindenburg report targeting Gautam Adani, and alleged attempts by George Soros to sow instability in India. These issues, combined with the persistent influence of the “deep state,” have often diverted India’s attention from structural challenges.
External affairs minister S Jaishankar recently critiqued the outdated “anti-Westernism” prevalent in India, arguing that such attitudes fail to align with changing geopolitical realities and areas of convergence.
Trade with the US remains India’s most promising avenue for sustaining an export surplus in goods and services. It also helps address its growing trade deficit with China and Russia, especially as free trade agreements with the European Union and United Kingdom remain stalled. India also aims to capitalise on the US’s efforts to de-risk from China, a move underscored by Trump’s threats of 60 per cent tariffs and other trade restrictions against Beijing.
Missing the woods for trees
India has been re-routing global trade without successfully integrating into global value chains that bring tangible benefits to the domestic economy. The country’s economic ambitions are often undermined by contradictions arising from its attempts to balance international pressures with insufficient domestic policy reforms.
Three examples come to mind.
First, the smart moves, such as India’s imports of huge volumes of discounted Russian oil – refining it and re-exporting it to Europe at good profits. This has created a tactical and favourable trade balance for India with the EU. Although, this comes at the cost of a ballooning trade deficit between India and Russia. Nonetheless, this rerouting benefits India, the EU, and global oil supply stability while reducing Russian hydrocarbon revenues.
However, broader trade opportunities expected from the Free Trade Agreement remain stymied due to misconceptions around the Carbon Border Adjustment Mechanism (CBAM), perceived as a non-starter by commerce minister Piyush Goyal and his team.
This pragmatic oil strategy contrasts sharply with India’s circumvention of sanctions to export Common High-Priority (CHP) list items to Russia, which yields little benefit to Indian manufacturing. Most of these supplies are routed via third parties, with India acting as a middleman to resell Western-origin products to a heavily sanctioned Russia at some profit. Unlike oil re-routing, which strategically capitalises on geopolitical upheavals, CHP re-exporting reveals a myopic approach. This will jeopardise India’s relationships with major trading and investment partners such as the US, EU, UK, and the Netherlands, and expose Indian exporters to sanctions.
Second is the paradox of de-risking. As global electronics and machinery manufacturing shifts to India, the country’s imports from China have surged. This raises questions about the efficacy of global de-risking efforts and highlights India’s over-reliance on Chinese industrial goods. The recently released Global Trade Research Initiative (GTRI) report reveals that 98.5 per cent of India’s imports from China—amounting to $49.6 billion—are industrial goods, with China supplying 29.8 per cent of India’s total industrial imports. To reduce dependence, India must invest significantly in deep manufacturing to produce critical industrial products domestically. Otherwise, the country’s exports to the West will only deepen its reliance on Chinese imports.
Third is the investment dilemma. Attributing economic challenges to external forces like the “deep state” overlooks critical structural issues. Recent trends show that Foreign Institutional Investors (FIIs) are offloading Indian holdings at unprecedented levels, redirecting, according to some sources, funds to China, where equity markets are perceived as more affordable. This could be a part of a broader trend of declining investor confidence in an overvalued Indian market compared to other emerging economies.
Net Foreign Direct Investment (FDI) into India has also been declining for years. Reserve Bank of India (RBI) data from earlier this year revealed a 62 per cent drop in net FDI, down to $10.6 billion in FY 2024—the lowest since 2007. Even as the West emphasises de-risking from China, investments bypassing China have not flowed to India but instead diverted to countries like Vietnam and Singapore.
Despite political rhetoric, these developments point to systemic problems within India’s investment ecosystem, including regulatory bottlenecks and uncompetitive frameworks. Without addressing these structural challenges and embracing sensible quid pro quo strategies, India’s ambitions of becoming a global manufacturing hub will remain sluggish.
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Trump’s love for tariffs matters
During his first term, Donald Trump made trade wars a defining feature of his economic policies by imposing higher tariffs on China, the EU, and India. As he prepares for a potential second term, he has already announced plans to levy tariffs on imports from Mexico (16 per cent of US trade), Canada (14 per cent), China (11 per cent)—the top three trading partners of te US—and India, which accounts for just 2 per cent of US trade.
From the perspective of these countries, the stakes are significant. According to the World Bank, The United States is the destination for 78 per cent of Mexico’s total exports, 77 per cent of Canada’s exports, and 16 per cent of China’s exports. Notably, the tariffs imposed on China during Trump’s first term allowed Mexico to surpass the former as the US’s top trading partner—a trend the Joe Biden administration continued.
The economic policies of the world’s largest economy inevitably shape global trade flows, even as the US grapples with its own vulnerabilities. The Federal Reserve’s recent adjustments to its 2025 projections, signalling a cautious monetary approach, have added to global pressure, particularly on emerging market currencies. For example, the Indian rupee recently fell by 12 paise to an all-time low of 85.06 against the US dollar.
India has traditionally maintained high tariffs to protect its local industries, which are often less competitive compared to the quality of goods produced abroad. This policy of protectionism has remained consistent across recent years. In the 2021–2022 Annual Budget, India raised tariffs on 31 product categories. In the 2022–2023 Budget, tariffs were increased on additional imported goods such as headphones and speakers. Yet again, in the 2023–2024 Budget, tariffs were hiked on items like plastic goods, jewellery, and private jets.
Simultaneously, India has been negotiating the reinstatement of its Generalized System of Preferences (GSP) status, which was revoked during Trump’s first term. The GSP program, initiated in 1974, is a US trade policy designed to promote global trade by offering preferential, tariff-free access to goods from developing countries. India enjoyed GSP benefits until 2019, when the Trump administration revoked them after conducting a review of India’s compliance with market access criteria.
Despite multiple attempts to restore GSP status, including recent discussions between Piyush Goyal and his US counterpart, it could not be restored under the Biden administration. The prospects look bleaker under Trump – unless India agrees to give massive concessions to make bilateral trade fairer.
The narrative that Donald Trump will address the perceived strategic shortcomings of the Biden administration resonates strongly in India. Many in the Indian commentariat trust Trump’s ability to confront the “deep state” and bring about a resolution to the Russia-Ukraine war. This sentiment is echoed internationally, with a Ukrainian MP even nominating Trump for a Nobel Peace Prize.
Various stakeholders anticipate structural changes if Trump returns to office, though their expectations are shaped by differing priorities and interests. From the perspective of India, however, bilateral ties with the US will be transactional – New Delhi will concede more benefits to Washington, with a likely shrunk space for strategic autonomy and multi-alignment.
Swasti Rao is Consulting Editor at ThePrint and a foreign policy expert. She tweets @swasrao. Views are personal.
(Edited by Zoya Bhatti)