The global trade order is likely to be disrupted by the incoming Donald Trump-led Republican administration from which India cannot be immune. As dealing with China’s challenge to US global influence will preoccupy Trump 2.0, the challenge for India will be to navigate the turbulence as trade and investment flows fragment along geopolitical lines, broadly into US-centric and Sino-centric blocs. During his election campaign, Trump has promised to impose a 60% tax on Chinese imports, in addition to an across-the-board 20% tariff on everything else the US imports. The US president-elect thinks tariff is the prettiest word in the dictionary and will weaponize it to demand reciprocity from countries, including India, that have trade surpluses with the US. Trump has named Howard Lutnick as Commerce Secretary “to lead our trade and customs agenda with additional direct responsibility for the Office of the United States Trade Representative (USTR).” Lutnick is a strong defender of the US president-elect’s plans and has suggested that tariffs should be used to negotiate trade deals with other nations.

The question is, of course, what it would be Indias response to Trump’s tariff turmoil? Top politicians have so far made cautiously optimistic statements that it will be business as usual for bilateral trade relations that have flourished under both Democratic and Republican administrations. But none of this is a substitute for a strategy to deal with Trump’s inward-looking stance that believes countries with bilateral trade surpluses are the real protectionists while the hapless US is the victim. Despite the strong personal chemistry between the President-elect of the United States and the Prime Minister of India Narendra Modiit should be mentioned that Trump has made statements about India being a “tariff king” and an “addict of imports”. Under Trump 1.0, the US actually raised tariffs on steel and aluminum for all countries, including India. India also lost its Generalized System of Preferences in 2019, which had benefited $5.7 billion of Indian exports to the US. Lutnick will promote this agenda because he believes tariffs will drive manufacturing Job back in the US.

Therefore, expecting a business-as-usual scenario is definitely not warranted as Trump will be transactional in his dealings with India. His administration plans to pass a reciprocal trade act that will impose tariffs on trading partners equivalent to those on the United States. There will be pressure on India to reduce its tariffs, which are the highest in any major world economy. According to the USTR’s latest National Trade Estimates report, tariffs in most favored nation India were 18.1%, with 14.7% on non-agricultural goods and 39.6% on agricultural goods.

Although our tariffs have recently come down somewhat, the fact remains that concessions will be required as the US trade-weighted average tariff on industrial goods is only 2%. India’s finance minister has stated that the country is willing to ease import tariffs if it doesn’t hurt local manufacturing capacity, but pressure will also come for India to import more US agricultural products, including dairy products, which has been a red line for us so far. A proper strategy is necessary for India to cope with such pressures and add ballast to its burgeoning trade with the US. Although the US is our largest trading partner, there is huge upside to exploit as two-way flows of goods and services remain at only 2.8% of US global trade.