Gamble behind Donald Trump’s trade play with India
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HomeUSISPF CommentaryThe strategic gamble behind Donald Trump’s trade play with India
The strategic gamble behind Donald Trump’s trade play with India
Originally Published in:
| 23 April 2025
Originally Published in:
| 23 April 2025
Share:
The ongoing US-India negotiations aim for the first tranche of a bilateral trade agreement by fall 2025
ON APRIL 9, the US administration reacted to the meltdown of financial markets, in the wake of President Donald Trump’s April 2 executive order imposing sweeping tariffs, by pausing reciprocal country-specific hikes for 90 days, excluding China. Indian exports, which long benefited from near-zero tariffs on many products, now fall under the 10 per cent universal duty substantially higher than before, though far less than the paused 26 per cent.
However, it is important to unpack the scope and nuances. The original plan called for a two-stage implementation an initial 10 per cent tariff on all imports, followed by an additional 16 per cent on Indian goods. While the second stage has now been put on hold, its inclusion in the executive order highlights the pressure India faces to accelerate trade negotiations. The phased design-and now the pause suggests that this is not just about protectionism, but also about creating negotiating leverage on India’s tariffs and the size of the US trade deficit with India.
The proposed reciprocal rate for India was explicitly framed as a response to India’s trade practices including high tariffs on American automobiles, electronics and agricultural goods, and a range of restrictive non-tariff barriers although the methodology is determined on the basis of the trade deficit. However, Trump’s order includes an off-ramp: If a targeted country addresses the concerns that prompted reciprocal tariffs, the US may reconsider and reduce that country’s rate. With US-India trade talks already underway, the pause has been portrayed by the Trump administration as less a retreat and more a calculated gesture, designed to keep negotiations moving while keeping pressure intact.
There is no question that the 26 per cent tariff would sharply impact India’s trade and economy. The US is India’s largest export market. In FY 2024, India recorded a goods trade surplus of approximately $45 billion with the US. While the pause spares India from immediate disruption, the underlying risk remains. Should the higher duty be reinstated, it would threaten to erode price competitiveness, potentially reducing export volumes, company revenues and jobs in export-driven sectors. Indian firms will be forced to either absorb the cost-cutting margins to keep US prices stable or pass it on to American buyers, which may suppress demand.
Notably, the Trump administration carved out certain essential sectors for exemption or lighter treatment. For example, pharmaceuticals were excluded from reciprocal tariffs globally a recognition, even if temporary, of their critical role in US health care. The US remains the top destination for Indian pharmaceutical companies, with exports valued at $8.73 billion in FY 2024-25 a 15.66 per cent increase over the previous year. India supplies nearly 40 per cent of generics sold in the US, often priced 50-90 per cent lower than branded alternatives. Imposing steep tariffs here could have driven up US health care costs and disrupted drug supply chains. As a result, life-saving Indian generics will continue flowing without added duties for the moment-preserving a vital area of trade cooperation amid broader tensions.
The ongoing US-India negotiations aim for the first tranche of a bilateral trade agreement by fall 2025, a commitment made during Prime Minister Narendra Modi’s February visit to Washington. This initial phase is expected to resolve smaller issues and lay the groundwork for a more comprehensive agreement. The tariffs scenario is also pressuring India to make concessions that may otherwise have been off the table. The administration has made it clear that if India responds with far-reaching, market-opening measures that equate with US average tariffs, it is willing to roll back the tariffs.
Washington’s key asks include much lower Indian tariffs, fixes for non-tariff barriers such as quality control orders and movement on rules-based chapters-intellectual property, technical barriers to trade, sanitary and phytosanitary (relating to health of plants) standards, trade facilitation, good regulatory practices and digital trade. While failure to compromise risks a return to higher duties, the opportunities are immense as well, potentially leading to a much higher level of economic integration between the world’s largest economy and the soon-to-be third largest economy.
Trump and Modi have set an ambitious goal of reaching $500 billion in bilateral trade by 2030―an objective that requires removing barriers, not adding new ones. In this context, the tariffs appear designed to be as much bargaining chips as permanent policy.
How does India’s treatment under Trump’s tariff push compare with other US trading partners? It was not singled out. The White House’s chart placed India roughly in the middle of the pack. With the pause in place, India has temporarily avoided the full brunt―but the message is clear. The US sees India as a significant trading partner whose high tariffs and non-tariff barriers cannot go unaddressed, but one whose strategic relevance demands negotiation. India’s position as first in line for negotiations reflects Washington’s acknowledgment of India’s importance. Trump himself noted Modi as a “great friend” in the same breath as he called out India’s trade practices. The underlying sentiment is that India is a friend―but one that needs to change its longstanding protectionist instincts.
Trump’s tariff strategy is a bold gambit―highly risky, but potentially effective. In India’s case, it is a strategic provocation to bring India to the table and push for a modernised, rules-based trade framework that addresses long-standing asymmetries. Even as such, there appears to be a US understanding that this negotiation should offer win-wins and not be zero-sum.
So far, the approach seems to be working. India’s response has been measured and negotiations are moving forward. That suggests both sides prefer diplomacy over escalation. One can support the goal of a more balanced, equitable US-India trade relationship while recognising the tactical costs involved. If a deal is reached, tariffs can be rolled back and bilateral trade can move to a stronger footing.
Of course, the outcome is not predetermined. In the coming months, India must decide how much reform and liberalisation it is willing to undertake in exchange for tariff relief. And the clock is ticking.
The world is watching―not just to see how two major economies manage their trade friction, but to gauge whether diplomacy can still prevail. At its core, this moment is a test: Can strategic partners navigate long-standing imbalances through negotiation, or are we entering a new age of transactional brinkmanship, where pressure replaces partnership as the currency of global trade?
Linscott is a former assistant US trade representative and senior adviser, trade, at the US India Strategic Partnership Forum; Shah is manager, trade policy and emerging and critical technologies, USISPF.
USISPF Commentary
The strategic gamble behind Donald Trump’s trade play with India
Originally Published in:
| 23 April 2025
Originally Published in:
| 23 April 2025
Share:
ON APRIL 9, the US administration reacted to the meltdown of financial markets, in the wake of President Donald Trump’s April 2 executive order imposing sweeping tariffs, by pausing reciprocal country-specific hikes for 90 days, excluding China. Indian exports, which long benefited from near-zero tariffs on many products, now fall under the 10 per cent universal duty substantially higher than before, though far less than the paused 26 per cent.
However, it is important to unpack the scope and nuances. The original plan called for a two-stage implementation an initial 10 per cent tariff on all imports, followed by an additional 16 per cent on Indian goods. While the second stage has now been put on hold, its inclusion in the executive order highlights the pressure India faces to accelerate trade negotiations. The phased design-and now the pause suggests that this is not just about protectionism, but also about creating negotiating leverage on India’s tariffs and the size of the US trade deficit with India.
The proposed reciprocal rate for India was explicitly framed as a response to India’s trade practices including high tariffs on American automobiles, electronics and agricultural goods, and a range of restrictive non-tariff barriers although the methodology is determined on the basis of the trade deficit. However, Trump’s order includes an off-ramp: If a targeted country addresses the concerns that prompted reciprocal tariffs, the US may reconsider and reduce that country’s rate. With US-India trade talks already underway, the pause has been portrayed by the Trump administration as less a retreat and more a calculated gesture, designed to keep negotiations moving while keeping pressure intact.
There is no question that the 26 per cent tariff would sharply impact India’s trade and economy. The US is India’s largest export market. In FY 2024, India recorded a goods trade surplus of approximately $45 billion with the US. While the pause spares India from immediate disruption, the underlying risk remains. Should the higher duty be reinstated, it would threaten to erode price competitiveness, potentially reducing export volumes, company revenues and jobs in export-driven sectors. Indian firms will be forced to either absorb the cost-cutting margins to keep US prices stable or pass it on to American buyers, which may suppress demand.
Author
Mark Linscott
Senior Advisor, Trade Policy
Anushka Shah
Manager – Trade Policy & Critical Emerging Technology
Notably, the Trump administration carved out certain essential sectors for exemption or lighter treatment. For example, pharmaceuticals were excluded from reciprocal tariffs globally a recognition, even if temporary, of their critical role in US health care. The US remains the top destination for Indian pharmaceutical companies, with exports valued at $8.73 billion in FY 2024-25 a 15.66 per cent increase over the previous year. India supplies nearly 40 per cent of generics sold in the US, often priced 50-90 per cent lower than branded alternatives. Imposing steep tariffs here could have driven up US health care costs and disrupted drug supply chains. As a result, life-saving Indian generics will continue flowing without added duties for the moment-preserving a vital area of trade cooperation amid broader tensions.
The ongoing US-India negotiations aim for the first tranche of a bilateral trade agreement by fall 2025, a commitment made during Prime Minister Narendra Modi’s February visit to Washington. This initial phase is expected to resolve smaller issues and lay the groundwork for a more comprehensive agreement. The tariffs scenario is also pressuring India to make concessions that may otherwise have been off the table. The administration has made it clear that if India responds with far-reaching, market-opening measures that equate with US average tariffs, it is willing to roll back the tariffs.
Washington’s key asks include much lower Indian tariffs, fixes for non-tariff barriers such as quality control orders and movement on rules-based chapters-intellectual property, technical barriers to trade, sanitary and phytosanitary (relating to health of plants) standards, trade facilitation, good regulatory practices and digital trade. While failure to compromise risks a return to higher duties, the opportunities are immense as well, potentially leading to a much higher level of economic integration between the world’s largest economy and the soon-to-be third largest economy.
Trump and Modi have set an ambitious goal of reaching $500 billion in bilateral trade by 2030―an objective that requires removing barriers, not adding new ones. In this context, the tariffs appear designed to be as much bargaining chips as permanent policy.
How does India’s treatment under Trump’s tariff push compare with other US trading partners? It was not singled out. The White House’s chart placed India roughly in the middle of the pack. With the pause in place, India has temporarily avoided the full brunt―but the message is clear. The US sees India as a significant trading partner whose high tariffs and non-tariff barriers cannot go unaddressed, but one whose strategic relevance demands negotiation. India’s position as first in line for negotiations reflects Washington’s acknowledgment of India’s importance. Trump himself noted Modi as a “great friend” in the same breath as he called out India’s trade practices. The underlying sentiment is that India is a friend―but one that needs to change its longstanding protectionist instincts.
Trump’s tariff strategy is a bold gambit―highly risky, but potentially effective. In India’s case, it is a strategic provocation to bring India to the table and push for a modernised, rules-based trade framework that addresses long-standing asymmetries. Even as such, there appears to be a US understanding that this negotiation should offer win-wins and not be zero-sum.
So far, the approach seems to be working. India’s response has been measured and negotiations are moving forward. That suggests both sides prefer diplomacy over escalation. One can support the goal of a more balanced, equitable US-India trade relationship while recognising the tactical costs involved. If a deal is reached, tariffs can be rolled back and bilateral trade can move to a stronger footing.
Of course, the outcome is not predetermined. In the coming months, India must decide how much reform and liberalisation it is willing to undertake in exchange for tariff relief. And the clock is ticking.
The world is watching―not just to see how two major economies manage their trade friction, but to gauge whether diplomacy can still prevail. At its core, this moment is a test: Can strategic partners navigate long-standing imbalances through negotiation, or are we entering a new age of transactional brinkmanship, where pressure replaces partnership as the currency of global trade?
Linscott is a former assistant US trade representative and senior adviser, trade, at the US India Strategic Partnership Forum; Shah is manager, trade policy and emerging and critical technologies, USISPF.