Few predicted that the trade war drums would begin to beat this quickly, but it was always assumed that Donald Trump’s second term as US president would upend the world order. India, one of America’s biggest trading partners, stands to lose a great deal as a result of his recent tariff proposals, which have already rocked markets.
From pharmaceuticals to IT services, billions of dollars’ worth of Indian exports hang in the balance. This goes beyond trade data and diplomatic chess plays, though. It concerns actual repercussions, such as price increases, stricken companies, and changes in the economy that may affect the middle class.
With Trump’s reciprocal tariffs going into force on April 2 and the potential for a global trade war, the question is no more whether India would be affected, but rather how it might avoid getting burned. It won’t be simple for a developing country like India to totally avoid the effects of Trump’s tariffs on the world economy, experts have stated.
“Given that President Donald Trump has been using higher reciprocal policy as an instrument of state policy, shielding India from incessant trade wars in this increasingly VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) world is uneasy,” said Dr. Manoranjan Sharma, Chief Economist at Infomerics Valuation and Ratings Ltd. India’s economy is deeply tied to the US, making an aggressive response risky. “Imposition of an equal and matching tariff by India on American goods may seem to be theoretically feasible in this multi-polar world but this is practically difficult, if not impossible,” Dr. Sharma explained.
It is an uneven playing field because of the disparity in the size of the two economies, America’s military might, and its technical advantage. India’s fragile ties with China makes matters more difficult. “Given India’s difficult relationship with China, there is no objective way India can afford to offend the US in the multi-layered international relationship,” he states. India is thus forced to walk a tightrope between maintaining economic relationships and balancing strategic goals.
India must explore elsewhere to lessen the impact of US tariffs that threaten important exports. Experts say that increasing domestic manufacturing and negotiating new trade agreements are two strategies. “Bolstering domestic manufacturing under Atmanirbhar Bharat and securing trade agreements with Europe, ASEAN, and Gulf nations could help India reduce its reliance on American markets,” says Ajit Mishra of Religare Broking. Deals with the UK and EU are already in the works, but experts caution that these alone won’t be enough. “Since the US is India’s largest trading partner and the largest export destination, it is unrealistic to expect this FTA to offset the impact of stiffer tariff by the US,” Dr. Sharma said.
To lessen India’s reliance on US markets, Mishra advises looking into alternatives including boosting rupee-based commerce, growing IT exports, and fortifying regional partnerships like BRICS.
Some contend that in order to protect itself against trade disputes, India should adopt China’s manufacturing strategy. Can India, however, follow China’s example? India’s manufacturing sector currently accounts for only 1315 percent of its GDP, which is significantly less than China’s.
“With a vast and young workforce, India must prioritise high value-added manufacturing while simultaneously boosting its services sector through greater investment in R&D and workforce upskilling,” Mishra said. But blindly copying China may not work. “Rather than replicating China’s model, India should embrace a holistic strategy that integrates industrial growth with technological advancement,” he adds.
While trade agreements and alliances are crucial, domestic industries must also brace for impact. “Domestic firms and industries need to retool their inputs, outputs and finished products to slash costs, maintain operational efficiency, and ensure an uninterrupted supply chain,” Dr. Sharma explained.
This includes anything from improving industrial methods to obtaining raw materials locally. Production-linked incentives and other forward-thinking programs like Make in India may provide some buffer. However, Dr. Sharma admits that this change is challenging, describing it as “difficult but by no means undoable.”
These trade disputes may result in increased costs, shifting employment opportunities, and economic instability for regular Indians. Household finances and job prospects in all industries will be directly impacted by the government’s response. The best course of action for India is to adopt a methodical, long-term strategy. “India’s strategy must be gradual, measured and calibrated to overcome the travails of transition,” stated Dr. Sharma. India may come out stronger on the other side if it plays its cards correctly by expanding its trading partners, boosting domestic manufacturing, and quickly adjusting to changes in the world.
