Published: 06:15 PM, 08 September 2025
India needs a strategy to counter US tariffs
”India will have to act fast to introduce drastic reforms in its taxation structure, remove restrictive laws and regulations on manufacturing and facilitate massive automation in core sectors.”
The tariff imposed by the United States on India has raised a number of debates relating to the varying challenges and how India will cope as far as trade relations with the United States are concerned. India’s volume of trade with the United States is USD 191 billion. The target set so far was that the volume of trade might reach the USD 500 billion figure by 2030 if the ease of doing business from both sides remains conducive. Unfortunately, the way the recent announcements by President Trump unfolded has raised serious questions on the continuity of India–US trade relations.
The day President Trump used the International Economic Powers Act (IEPA) of 1977 in April this year marked the beginning of a new era in US engagement with the world in general and India in particular. Speaking from the Oval Office, Trump said, “We get along with India very well, but for many years, it was a one-sided relationship.” He meant that the export–import ratio was in India’s favour. Trump’s reference was also to the high Indian tariff on exports to America. But it is interesting to note that he preceded his criticism about high tariffs by saying, “We get along with India very well.” This should be taken as an olive branch towards India, especially coming soon after the photographs of Narendra Modi, Xi Jinping, and Vladimir Putin huddled together at the SCO meeting in Tianjin went viral.
It will not be far from the truth to say that the high tariff on Indian exports to the US—mostly services in the IT sector—as compared to low US tariffs on exports to India has tilted the balance of trade in India’s favour. From USD 652.8 million in 1985, the US trade deficit with India has grown to USD 34,253.8 million in 2025. The reason for this is not far to seek. While India’s services exports to the US grew exponentially, American manufacturing was close to nil. America increased its dependence on China, probably with a geopolitical strategy of making China economically stronger to wean it away from Russia. America had very little to offer India in exports, as India found it cheaper to trade directly with China. Besides, the exchange rate was highly forbidding for the Indian market and the consumer.
As a result, America lost its manufacturing capabilities and became an investing country. With all the dollars that China accumulated from US trade, it invested in defence technology and began challenging the American defence production industry. Trump should know that it was not India but Communist China that has exploited American consumers.
Instead of complaining about India’s high tariff, America under Trump should speed up domestic manufacturing and bring back manufacturing units from China and elsewhere to America. Then, over the next decade, the US could probably regain its manufacturing capabilities.
Trade between countries is changing as old structures are being undone. China has announced it will eliminate all tariffs on imports from 53 African countries with which it has diplomatic ties, aiming to boost trade and offer African exporters broader access to the Chinese market. The US and the UK finalised a trade agreement framework in June 2025, resulting in the lowering of tariffs on certain British goods like cars, aerospace equipment, and steel and aluminium. Indonesia and Singapore signed landmark deals to trade low-carbon electricity as an alternative to fossil fuel, collaborate on carbon capture and storage, and develop green industrial zones—aiming for USD 10 billion in investment and 3.4GW of power exports by 2035.
In these circumstances, India will have to act—and act fast—to introduce drastic reforms in its taxation structure, remove restrictive laws and regulations on manufacturing, and facilitate massive automation in core sectors. On the India–US Free Trade Agreement (FTA), New Delhi will surely have to reconsider lowering its tariff structure on exports to America, without compromising its “Make in India” schemes and “Aatmanirbhar Bharat”, especially in the defence sector and the all-important agriculture sector. The pharmaceutical industry also needs special care, as the country’s health system depends on this sector. While India faces serious challenges from US-based transnational pharma entities, it is highly dependent on China for advanced intermediates. Pharma as well as the core sector need huge fund infusion in research and development (R&D), which only the government can provide.
The tariff unleashed by the Trump administration is a huge challenge but also an opportunity for Indian industry to improve production through automation, diversify export markets, and become an active partner in the global supply and value chain process. Trump’s strong belief that the rest of the world was taking advantage of the US—and that, in turn, reduced the overall manufacturing capacity—has driven him to impose tariffs to address what he sees as the injustices of global trade. The US, under Trump’s leadership, is in search of driving economic growth for the American people.
There is no denying that this period seems to be the most challenging moment for India–US relations since 1998. India and the US have divergences on Pakistan, Russia, China, and trade practices. President Trump had also reflected his annoyance with the BRICS grouping. The de-dollarisation debate has created negative consequences for India–US bilateral approaches. India’s convergence with China witnessed during the SCO meeting is yet another factor. India’s complete rejection of US involvement in the India–Pakistan ceasefire post-Pahalgam has also created irritants in the bilateral relationship.
It is high time for India to revisit and recalibrate its trade strategy with the United States and see how the export–import ratio with the US can become more balanced. India will certainly be guided by its national interest. The US needs to understand the emerging predicament of India and should not allow the strong foundation laid between the two nations to develop cracks from within. The US has to strengthen its partnership with India for continuing with a strong and peaceful international liberal order. Both India and the US will require a guiding framework and a strategy by which both can strengthen their manufacturing. That perhaps would enhance their overall capacity. India’s mitigation strategy will mostly focus on intensifying all its efforts in strengthening the “Make in India” campaign into a reality, where India will emerge and transition itself from being a net importer to a net exporter country.
Written by: Dr Arvind Kumar & Dr Sheshadri Chari (Dr Arvind Kumar is Professor at the School of International Studies, JNU, New Delhi. Dr Sheshadri Chari is Professor Emeritus at Savitribai Phule Pune University.)
>> Source: The Sunday Guardian
