The 2024 US presidential race presents a very important moment for India, with Vice President Kamala Harris and former President Donald Trump as the leading candidates. The outcome could reshape US-India trade relations . Trump’s previous administration was marked by a protectionist stance, which may resurface, potentially imposing higher tariffs on Indian exports. This scenario raises concerns for various sectors in India, particularly textiles and pharmaceuticals, which rely heavily on the US market.
The Importance of US-India Trade Relations
The United States is India’s largest trading partner, with bilateral trade hitting nearly $120 billion in FY24. This relationship has grown increasingly vital, with the US accounting for 18% of India’s exports, a notable increase from 10% in 2010-11. The diversity of India’s export basket, spanning textiles to electronics, puts stress on the significance of this partnership. However, the dependency on the US market poses risks, especially in light of potential tariff increases.
Historical Trade Dynamics
Historically, the US has distanced itself from the liberal trade order established post-World War II, particularly after China’s entry into the WTO in 2001. The anticipated economic liberalisation did not materialise, leading to a rise in state capitalism in China and affecting US job markets. In response, the US has refrained from entering new free trade agreements and has blocked appointments to the WTO’s dispute resolution body, effectively crippling its function. This has created an environment of uncertainty for India, which relies on stable trade agreements.
Trump’s Protectionist Policies
During his first term, Trump imposed tariffs on steel and aluminium from various countries, including India. His rhetoric labelled India a tariff king, which could reignite tensions if he returns to office. The average tariff in India rose to 18.1% in 2022, impacting competitiveness against nations like Vietnam. In contrast, India has implemented Production-Linked Incentive (PLI) schemes to boost local manufacturing, attempting to offset the negative impacts of high tariffs.
Potential Economic Consequences
The ramifications of a Trump presidency could extend beyond trade tariffs. Economic policies, such as import taxes and deportations, might stoke inflation in the US, which would adversely impact Indian exports. Higher inflation could reduce demand for labour-intensive goods like textiles and leather products, threatening millions of jobs in India. The Peterson Institute for International Economics warns that inflation could rise under Trump’s proposed policies, further complicating the trade landscape.
India’s Strategic Response
In anticipation of potential trade disruptions, India has sought to diversify its export markets and reduce reliance on the US. However, the challenges posed by protectionist measures and fluctuating tariffs necessitate a strategic approach. Strengthening domestic industries through initiatives like the Make in India campaign and enhancing trade relations with other countries could mitigate risks associated with US trade policies.
Questions for UPSC:
- Discuss the implications of the US presidential elections on India’s trade policies.
- Analyse the historical context of US-India trade relations and its impact on current economic strategies.
- Evaluate the potential effects of protectionism on India’s export sectors in a global context.
- What measures can India implement to counteract the risks of increased tariffs from the US?
- Examine the role of the WTO in shaping international trade dynamics and its relevance to India.
