Opinion by Ashok Gulati, Sulakshana Rao, Tanay Suntwal
Opinion Ashok Gulati writes: Trump’s tariff war: How should India play its cards?
India can accommodate US interests on trade without compromising its own. It can begin by identifying goods, whose tariff reductions will have minimal domestic impact
Some of the highest duties are on alcoholic beverages and tobacco products -- whiskey, vodka, rum, sparkling wine, and cigars which face duties as high as 150 per cent. (Illustration by C R Sasikumar) 
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With Trump’s reciprocal tariff policy likely to kick in from April 2, India has to be ready with its response. Should it be retaliatory or cooperative for a possible win-win game for both countries? US Secretary of Commerce Howard Lutnick recently said that India needs to step out of its existing model and open up markets as both nations work towards a great trade deal. The Trump-Modi meeting last month envisioned Mission 500 — targeting to increase bilateral trade to $500 billion by 2030, up from about a little less than $200 billion in 2023. This is a massive jump which will need each side to accommodate the other’s interest. In our opinion, this offers an opportunity for a win-win game, provided we play our cards smartly and not retaliate. Commerce Minister Piyush Goyal’s next trip to the US will decide how far we succeed in our strategy with cooperation and understanding.
President Donald Trump seems determined to reset world trade with his reciprocal tariff policy. There is no doubt that most major trading partners of the US have enjoyed low import duties in the US while exporting their goods, while they have kept their own import duties relatively high. At the heart of Trump’s “reciprocal tariffs” policy is a simple logic – a tariff imposed on American goods will lead to retaliation. Trump expects that this policy will bring in not only billions of dollars in tariff revenue but also reduce the US trade deficit significantly.
There is no shame in admitting that India has been almost a “Tariff King”, as Trump has taunted many times. India’s tariffs are multiple times of what the US imposes. According to WTO data, India imposes tariffs that are 5.2 times higher than what the US charges on Indian goods. The disparity exists across other key trade partners as well Canada (1.2 times), Mexico (2.1 times), the EU (1.5 times), and China (2.3 times). The imbalance is even worse for agricultural products. India’s agricultural tariffs are 7.8 times higher than what the US imposes on Indian farm exports. Canada (2.96 times), Mexico (2.38 times), the EU (2.16 times), and China (2.8 times) also maintain significantly higher agricultural tariffs. No wonder Trump is upset with this unequal treatment of US goods in the global trading system.
The US trade deficit (in goods and services) hit $918.4 billion in 2024, this is a major concern for Trump. The goods trade deficit alone stood at $1,211.7 billion, partly offset by a $293.3 billion surplus in services trade. China remains the biggest driver of this deficit, accounting for $295.4 billion, followed by the EU, Mexico, Vietnam and Canada (See graphics). India, though a smaller player, ranked 10th contributing only $45.7 billion to the US trade deficit (according to USBEA data for 2024). But what’s even more striking is the pace at which America’s trade deficit with certain countries has grown. Between 2020 and 2024, the US deficit with Canada grew by 239.4 per cent, followed by South Korea (161 per cent), Taiwan (147.1 per cent), and India (88.1 per cent). This has irked and worried Trump.
India’s stakes are high. The US is India’s largest trading partner. How can India accommodate US interests without rocking the boat? This is the crux of any negotiation.
Energy and defence are the two big ticket items to accommodate US interests. In FY23-24, India imported crude petroleum oil worth $139.2 billion (Department of Commerce, GoI). Russia accounted for 34.6 per cent of that, Iraq 20.7 per cent, Saudi Arabia 16.8 per cent and the US 4 per cent. India can easily increase its energy purchases from the US. If need be, top it up with some high-tech defence purchases like F-35 fighter jets. This can easily balance the US’s trade deficit with India. From India’s perspective, the ongoing US-China trade war will create new opportunities for India, especially in labour-intensive products including toys, textiles, and leather items.
But India must begin identifying goods where tariff reductions will have minimal domestic impact and accommodate US interests. Some of the highest duties are on alcoholic beverages and tobacco products — whiskey, vodka, rum, sparkling wine, and cigars which face duties as high as 150 per cent. Similarly, automobiles and EVs are taxed up to 125 per cent, while key agricultural products like walnuts, honey, coffee, green tea and sugar face duties between 50-100 per cent. Does it make sense to keep these tariffs so high? In some sensitive cases, yes. But in others, they are excessive. In our opinion, all excessively high tariffs need to be brought down to a maximum of 50 per cent. If these industries cannot survive even with a 50 per cent tariff protection, it is not worth protecting them.
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Negotiations are going to be tough in agriculture, given its sensitivity in India. From the US perspective, its top agricultural exports include soybean ($27.9 billion), maize ($13.3 billion), and cotton ($6 billion), on which India imposes tariffs of 45 per cent, 50 per cent, and 5 per cent, respectively. A whopping 150 per cent tariff is imposed on food preparations, another major export interest item of the US ($5.7 billion). Skimmed Milk Powder (SMP) attracts a duty of 60 per cent. The best way for India would be to negotiate tariff rate quotas and give some access to US products.
In return, India could ask for greater market access for its many exportable agri-products, including pomegranates, grapes, mangoes, bananas, Indian snacks, and food preparations. The onus lies on India to build effective export lines for the US, taking care of their sanitary and phytosanitary standards concerns. India needs to do this homework to frame a win-win strategy.
Gulati is distinguished professor, Rao is senior fellow and Suntwal is research assistant at ICRIER. Views are personal
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