For India, Tariff Game’s Just Begun

medium119950559Trump’s country-specific tariffs, varying from 10% to 54% — India’s been slapped with a 27% rate — can push investments in countries with lower tariff disadvantage. This may lead to the emergence of new manufacturing locations for prepared countries. India will need specific internal reforms to benefit. Will it step up?But why’s the tariff rate for India on the lower side? | In 2024, India exported over $80bn worth of goods to US, with a trade surplus of $36.4bn. To India’s worried business people, a 27% country-specific tariff on India is steep but appears moderate compared to Vietnam’s 46% and China’s 54%.Was India given softer treatment? No one knows. But note that since Trump took office in Jan, India has made several policy decisions to help US companies.These include cutting import taxes on bourbon whiskey, fish feed, motorcycles, satellite parts and mobile phone components. India also removed a 6% digital tax on revenue earned from Indian users, benefitting US firms like Google, Meta and Amazon. It is working on changing its nuclear liability law so US companies can supply nuclear equipment without fear of legal risk.India may soon allow Elon Musk’s Starlink to offer satellite internet through local partners like Reliance Jio and Bharti Airtel.What is the impact of the new tariff on India’s exports? | Trump’s sweeping tariff action creates mixed outcomes for Indian exports. India may gain a relative advantage in select sectors, but gains won’t be automatic. Total tariff charged from April 9 will be a sum of the existing US tariffs and new country-specific tariffs.Textiles and garments are well-positioned to benefit, as US tariffs reduce competitiveness of rivals like China and Bangladesh. However, India must reform labour laws and enable large-scale production to fully capitalise on this opening.In electronics and telecom, steep tariffs on Vietnam and Thailand create space for India, but limited domestic value addition and high component imports dilute competitiveness. Tariff exemptions on 28 mobile components in the latest budget may further weaken the domestic ecosystem.India’s top export, pharmaceuticals ($12.7bn), remains tariff-free, though reducing dependency on Chinese APIs is crucial.Diamonds and jewellery ($11.9bn) and auto parts ($2.2bn) face 25% tariffs — worrisome as US is a major buyer. Specialty chemicals, footwear, and processed foods also face demand shocks.Agriculture will be hit unevenly. Shrimp and dairy exports may decline, while rice exports remain largely unaffected. Petroleum exports are exempt.But more pain for India may be on the way | India faces more significant pressure than most countries, which have to absorb only Trump tariffs. As India negotiates a free trade deal with US, it must contend with broader American demands beyond tariffs. The 2025 National Trade Estimates report, released by US on March 31, outlines Washington’s key demands from India:In agriculture, US wants India to reform its MSP system for rice and wheat, allow GM food imports and lower tariffs on farm products.Washington also wants India to amend its Patents Act to allow ever-greening, a practice that extends patent protection for older drugs and delays generic alternatives.In e-commerce, US demands the removal of restrictions on inventory-based models, allowing Amazon and Walmart to sell directly to Indian consumers. Other demands include granting US firms access to govt contracts — including defence.These are all tough demands. Some of them will have huge social consequences if accepted.Six-point strategy for India* Rethink FTA with US. India will have difficulty agreeing to most demands. For example, weakening MSP could jeopardise farmer incomes and food security, while allowing GM crops and low-tariff imports may harm domestic agriculture and biodiversity. Similarly, diluting patent law will increase medicine prices, and allowing Amazon to store and sell its products will hurt millions of kirana shops and workers.A better approach for India is to offer a zero-to-zero tariff deal on 90% of industrial goods excluding cars, based on mutual give-and-take.* Do not cut agri tariffs. This could devastate the livelihoods of 700mn Indians. Global grain price volatility has already wiped out self-sufficient farming in parts of Africa. The cheap price cycle kills farmers’ interest in cultivation, while the expensive cycle fuels inflation. India may lower tariffs on a few fruits and nuts but not on grains and other agri-produces.* Do not cut auto tariffs. Trump has already imposed a 25% tariff on automobiles. Cutting Indian tariffs will harm a key industry that makes up nearly a third of manufacturing GDP. The collapse of Australia’s domestic auto industry after steep tariff cuts from 45% to 5% in the early 1990s serves as a warning.* Fast-track other FTA negotiations. Talks are on with EU, UK and Canada. Explore broader economic alignments like India-China-Russia. Deepen engagement with existing FTA partners such as Japan, South Korea and Asean.* Do tariff and other reforms. Uneven country-specific tariffs create an opportunity for India, especially in labour-intensive sectors. However, India must reform its tariffs, quality standards, GST and trade procedures to take advantage. Many of these changes, however, are unlikely to happen soon.* Give up smartphone exports. A sure way India could halve its $36.4bn trade surplus with US — with minimal economic pain — is by curbing exports of products with very high import content, such as smartphones, solar panels, gold jewellery and diamonds to US. These goods made up $16.9bn in exports to US in 2024, but net foreign exchange earnings were under $150mn. For instance, India exported $7bn worth of smartphones yet retained just $42mn — much of it was distributed as production-linked incentives. This will be a controversial reform domestically for India. But logically, it’s an easy way out.The world must understand that Trump can demand more. He could soon push countries to appreciate their currencies, to boost US exports. But also, high inflation, rising costs and market volatility at home may limit Trump’s options in the coming months. In this uncertain environment, India should tread carefully — and avoid long-term commitments that may not age well.The writer is an expert on trade & tech issues