Recent developments in 2025 have seen escalating trade tensions between India and the United States. These strains arise amid US punitive tariffs, visa restrictions, and geopolitical disagreements. India faces economic challenges but also opportunities to diversify its trade partnerships. The global trade order is witnessing shifts as emerging powers seek alternatives to US dominance.
US-India Trade Conflict
The US has imposed 25% tariffs on Indian goods linked to Russian oil purchases and threatened higher reciprocal tariffs. The H1-B visa programme, vital for Indian professionals, faces cuts. India’s exports to the US risk losing up to $50 billion. These measures reflect a broader US strategy to punish perceived economic and geopolitical non-compliance. India denies any role in conflicts cited by the US and stands firm on its policies.
Geopolitical Context and Diplomatic Fallout
US claims of mediating Indo-Pak conflicts and accusations linking India to the Russia-Ukraine war have caused diplomatic friction. India rejects these narratives. The US’s aggressive stance has damaged trust built over 25 years of Indo-US relations. Allies and partners view the US with scepticism. India’s diplomatic efforts now focus on damage control and recalibration.
India’s Strategic Response
India avoids direct retaliation due to limited leverage. Instead, it aims to diversify exports towards regions like Russia, Japan, Africa, Latin America, and the EU. Pursuing free trade agreements with multiple blocs, including ASEAN and the expanded BRICS, is a priority. India seeks to engage pragmatically with the US to balance oil imports and protect exports. Domestic reforms, especially reducing import duties, are crucial to improve competitiveness.
Global Trade Dynamics and the WTO
The US’s tariff policies contribute to the erosion of the World Trade Organization’s authority. Trade deficits and protectionist politics fuel these measures. The theory of comparative advantage is often overlooked, leading to harmful import restrictions. Historical exchange rate manipulation, notably by China, has distorted trade balances. Addressing such distortions is essential for fair trade and global economic stability.
Economic Outlook and Future Prospects
Economists predict possible US stagflation or recession within a year due to current policies. Meanwhile, India must navigate these challenges with agility. Strengthening ties with non-US partners and reforming domestic trade policies will be vital. The global economic landscape is shifting, with emerging economies seeking new alliances and trade frameworks. India’s ability to adapt will shape its economic future.
Questions for UPSC:
- Point out the implications of US tariff policies on India’s export economy and suggest measures India can adopt to mitigate these impacts.
- Critically analyse the role of the World Trade Organization in managing global trade disputes and estimate its relevance in the current geopolitical climate.
- Underline the significance of the H1-B visa programme for India-US relations and discuss the potential consequences of its reduction on India’s skilled workforce migration.
- With suitable examples, explain the theory of comparative advantage and analyse how exchange rate manipulation by countries like China affects global trade balances.
