India should expand its export portfolio, diversifying its trade to other economies such as SE Asia and Latin America
Published Date – 26 February 2025, 04:00 PM
By Titir Sarkar, Mousumi Chatterjee
Trade policies have become increasingly uncertain in recent years due to rising protectionist measures and geopolitical tensions, including the Russia-Ukraine war and the Israel-Palestine conflict. This uncertainty has intensified following Donald Trump’s re-election as US President. In February 2025, Trump announced a “reciprocal” tariff policy, intending to match tariffs imposed by other countries on US exports.
However, economists argue that such measures often lead to higher consumer prices rather than effectively reducing trade deficits. There are growing concerns that these policy shifts could disrupt the global supply chains, exacerbate geopolitical conflicts among nations and hinder global economic growth.
While talks to strengthen bilateral trade are ongoing, India needs to speed up negotiations to avoid deterioration in its trade prospects and secure favourable free trade agreements
The US was India’s largest trading partner as of 2024, while India ranks tenth among the US trading partners. Over the years, trade relations between the two nations have evolved significantly, influenced by changes in leadership and shifting policy priorities.
This paper examines the trajectory of US-India trade relations across different political administrations and assesses the potential impact of Trump’s new tariff policy on India’s exports, trade surplus, and competitiveness in the global market using the recently developed OEC Tariffs Simulator (BETA). It also analyses the estimated changes in exports from India to the US due to the imposition of additional tariff rates (over current rates) of 10 and 20 per cent.
Pre-Trump Era
During Barack Obama’s presidency (2010–2016), India was recognised as a key economic partner of the US. Bilateral trade relations witnessed significant expansion through market access reforms and strategic partnerships. A pivotal policy that benefited India substantially was the Generalized System of Preferences (GSP), which granted duty-free access for over 3,000 Indian products exported to the US. According to data from the United States Census Bureau, India’s exports to the US increased from $21.17 billion in 2010 to $46.02 billion in 2016, reflecting a sharp rise in trade volume.
Trump Era
The election of Donald Trump in 2017 marked a significant shift in the US trade policy, with an increased focus on protectionist measures which had direct implications for India. This period was characterised by tariff hikes and the revocation of India’s GSP status in 2019, impacting the competitiveness of Indian exports.
Despite these restrictive trade policies, bilateral trade continued to grow. The 2019 Bilateral Trade Report by the US-India Strategic Partnership Forum estimated that total bilateral trade between India and the US would reach $177.7 billion by 2021. However, the Covid-19 pandemic in 2020 led to a 17% decline in trade, disrupting growth patterns. By 2021, trade rebounded to its pre-pandemic trajectory, with India’s exports to the US reaching $102.36 billion, while imports from the US stood at $56.67 billion, resulting in a trade surplus of $45.69 billion.
Post-Trump Era
Under Joe Biden’s administration (2021–25), US-India trade relations witnessed a more cooperative approach, emphasising trade facilitation and market access. The revival of the Trade Policy Forum (TPF) played a crucial role in addressing bilateral trade issues and strengthening economic engagement. Additionally, India’s participation in the Indo-Pacific Economic Framework (IPEF) in 2022 reinforced regional trade ties.
As a result, India’s merchandise exports to the US increased from $83.7 billion in 2023 to $87.4 billion in 2024, marking a 4.5% annual growth. Consequently, India’s trade surplus with the US touched $45.7 billion in 2024, reflecting a 5.4% increase ($2.4 billion) from the previous year.
The US emerged as India’s largest trading partner in the fiscal year 2022–23, even though the latter remained only the ninth-largest trading partner for the US. In 2023, India exported goods worth $85.5 billion to the US, accounting for 19.4% of its total goods exports. India’s key export commodities to the US included packaged medicaments (12.2%), diamonds (8.9%), broadcasting equipment (7.23%), refined petroleum (6.02%), jewellery (3.49%), motor vehicles and parts (2.33%) and household linens (2.24%).
Reciprocal Tariffs
India has been prominently targeted in the proposed retaliatory tariff measures, which could lead to significant trade disruptions. If an additional tariff of 10% is imposed on Indian exports, then the most affected sector would be refined petroleum, with an estimated decline of $2.38 billion in exports. Other sectors likely to face a significant loss are diamonds ($-150 million), knit T-shirts ($-157 million), non-knit women’s suits and house linen ($-148 million for each).
Meanwhile, China, Canada and Mexico are the competitors expected to benefit, with their projected increase in exports being $1.06 billion, $812 million and $345 million respectively. China is expected to benefit in the sectors of house linens ($75 million), non-knit women’s suits ($59 million) and refined petroleum ($56.9 million). Gains to Canada and Mexico are primarily from the refined petroleum sector ($551 million and $82.8 million respectively).
If the US imposes a 20% additional tariff over the current rates, Indian exports would reduce drastically by $20.8 billion, where key sectors to be impacted are refined petroleum ($-2.57 billion), diamonds ($-1.89 billion) and packaged medicaments ($-1.7 billion). The major competitors continue to remain the same, with their gains amplifying manifold and reinforcing their position as the major exporters to the US.
Long-term Solution
The current uncertainty over the US trade policy poses a significant threat to India’s long-standing trade relations with it. India needs to find immediate and long-term solutions to navigate this scenario. It should expand its export portfolio and reduce its dependency on the US market, diversifying its trade to other economies, such as South East Asia, Latin America and the Middle East.
While talks to strengthen bilateral trade are ongoing, India needs to speed up the negotiations to avoid deterioration in its trade prospects and secure favourable free trade agreements (FTA) to ensure long-term stability.
(The authors are PhD scholars in Economics, Centre for Economics and Social Studies [CESS], Hyderabad)