US President-elect Donald Trump’s warning to India about reciprocal taxes against Indian exports if New Delhi does not lower import duties on the American goods hints about the prospective US trade policy, which does not differentiate between ally and adversary.
The United States is India’s largest export destination and it is one of the few countries in the world with which India has a trade surplus. In 2023-24, imports from the US stood at $42.2 billion, while exports to the US reached $77.52 billion. India’s major exports to the US are IT, pharmaceutical products and textiles.
During Mr Trump’s first term, he levied higher tariffs on Indian steel and aluminium, making India retaliate against almonds and apples from America. Going by his rhetoric, he could follow his same old model.
Even if India lowers its import duties in some sectors such as automobiles, it is unlikely for the US to match India’s competitive advantage. However, there are sectors such as agriculture, seafood and poultry among others, where the US businesses have economies of scale and Indian farmers cannot match them.
If India opens its agricultural markets to the US, it could overwhelm the Indian farmers, whose average land holding is less than three acres compared to 464 acres in the US. It will also destroy Indian farmers affecting self-sufficiency in foodgrains.
Though the government uses tariffs as a measure to protect the local industry or farmers, it is at best short-term in nature. The real protection for the local industry lies in making the country’s businessmen and farmers more competitive by helping them achieve economies of scale.
Overheads like the cost of land, official rent-seeking, and time and duration of litigation increase the Indian cost of production and need urgent attention. The Indian government should initiate reforms to make Indian businesses focus on their main line of business rather than make them turn into real estate investors. Hence, India must become competitive to beat Mr Trump in his own game.
