India looks on nervously as Trump wields tariff threat

Last week, India further reduced import duties on motorcycles, with duties on heavy motorcycles with engine displacement exceeding 1600cc falling from 50% to 30%, and duties on motorcycles with smaller engine displacement falling from 50% to 40%. This move is seen as a preemptive measure by India to further facilitate the entry of Harley-Davidson motorcycles into the market, and at the same time, the Indian government hopes to avoid potential tariff threats. Last year, the United States' motorcycle exports to India amounted to $3 million.

Since returning to politics, former US President Donald Trump has once again brandished the banner of trade protectionism, targeting not only its neighbors and allies, but also its main competitor, China. India hopes to get ahead of the situation by lowering tariffs, but whether these tariff cuts will satisfy Trump's demands, or whether trade actions are still in the works, remains unknown. These uncertainties add complexity to the future trade relationship.

Ajay Srivastava, founder of the Delhi-based think tank Global Trade Research Initiative (GTRI), said: "Canada and Mexico are effectively the arms and legs of the United States. If he took action against them, he could easily take action against India." At the end of last month, the US President, in a telephone conversation with Indian Prime Minister Narendra Modi, urged India to buy more US weapons and achieve a fairer trade balance, continuing to exert pressure. The US is keen to see more balanced trade relations.

During Trump's first term, he focused on India's high tariffs. He repeatedly slammed the then 100% tariff on Harley motorcycles as "unacceptable" and used it as a rallying point against what he considered unfair trade practices. In the past, he has repeatedly called India the "tariff king" and a "big abuser" of trade relations. These criticisms highlighted his focus on trade imbalances.

India maintains a trade surplus with the United States, and the United States is India's largest trading partner. In 2023, bilateral trade exceeded $190 billion. Since 2018, India's merchandise exports to the United States have surged 40% to $123 billion, while service trade has grown 22% to $66 billion. At the same time, US exports to India amounted to $70 billion. In addition to motorcycles, India also reduced the import tax on satellite earth stations to zero, benefiting US exporters, who supplied $92 million in 2023.

The tariff on synthetic flavors was reduced from 100% to 20% (US exports of $21 million last year), while the tariff on fish hydrolysate for aquaculture feed was reduced from 15% to 5% (US exports of $35 million in 2024). India also eliminated tariffs on certain scrap and waste materials, with US exports of $2.5 billion in this category last year. The main US exports to India in 2023 included crude oil and petroleum products ($14 billion), liquefied natural gas, coal, medical equipment, scientific instruments, scrap metal, turbojet engines, computers, and almonds.

Mr. Srivastava said: "While Trump has criticized India's tariff policies, the latest tariff reductions indicate a shift in policy, which could boost US exports in various industries." "With key tariff cuts on technology, automotive, industrial and waste imports, India appears to be taking steps to promote trade even as the global trading environment remains tense." This shift could signal a more open approach to trade.

Meanwhile, India's export range is broad, from textiles, pharmaceuticals and engineering products to petroleum, machinery and cut diamonds. It also exports smartphones, auto parts, shrimp, gold jewelry, footwear, and steel, making it a key player in global trade. Mr. Srivastava said: "This diverse product range reflects India's broad export base and its strong trade relationship with the United States." This diversification is crucial for India's economic stability.

India was once one of the most protectionist economies in the world. In the 1970s, American political scientist Joseph Grieco described it as having "the most stringent, most cumbersome... system of regulating foreign direct investment." This inward-looking approach led to a steady decline in India's share of global trade, from 2.42% in 1948 to just 0.51% in 1991. As Aseema Sinha, author of "Globalizing India: How Global Rules and Markets are Shaping India's Rise," observed, this period was characterized by "self-driven industrialization efforts, export pessimism, and skepticism towards global alliances."

India finally opened up in the 1990s and early 2000s, reducing average tariffs from 80% in 1990 to 13% in 2008. But after Modi launched the "Make in India" policy to promote Indian manufacturing, tariffs rose again to about 18%, higher than those set by other Asian countries such as China, South Korea, Indonesia and Thailand. This increase reflects a renewed focus on domestic production.

Trade expert Biswajit Dhar believes that India is now a prime target under Trump's "America First" policy, which seeks reciprocal action on high import taxes and a reassessment of trade relations with countries with large deficits with the United States. He said that market access for agricultural products remains a sticking point for the United States. India removed retaliatory tariffs on US almonds, apples, chickpeas, lentils and walnuts in 2023, but Trump may demand more. However, given domestic political sensitivities surrounding agriculture, India is likely to stand its ground. Dhar warned: "This is where we will have tough negotiations and there could be problems."

Nevertheless, India's strategic relationship with the United States as a member of the Quad Security Dialogue, which is aimed at countering China, may help ease friction. Dhar noted that India's willingness to accept the repatriation of undocumented Indian immigrants in the United States without retaliation also sends a positive signal. Experts also point to the good personal relationship between Modi and Trump as an advantage. According to some reports, the situation will become clearer when the Indian Prime Minister visits the White House this month at Trump's invitation. This visit could be crucial for future trade relations.