India-US trade after Trump returns:Much to fret about but scope for optimism too

The much-awaited US election results on Wednesday showed that Donald Trump will be returning to the White House in early 2025. His return has intensified Indian discussions on future of the India-US trade relations. 

Our bilateral trade relations have seen a new momentum in recent years, with the US trying to reduce its dependence on China with its China-plus-one strategy, and India trying to play a bigger role in US companies’ value chains. 

Between January and July 2024, India’s merchandise exports to the US increased by 9.3%, reaching $48.2 billion, up from $44.1 billion in the same period of 2023. 

Between 2018 and 2023, India’s export of goods to the US increased from $54.3 billion to $83.8 billion, while imports from the US saw a lower increase from $33.2 billion in 2018 to $40.1 billion in 2023. 

Also read: US elections 2024 outcome is set to reshape India trade ties

For India, a positive trade balance with the US is important, as it is among the country’s top three trade partners. But for the US, its negative trade balance with India is a cause for concern.

In services, the US is India’s largest market for exports. India enjoys a large positive trade balance in telecommunications, computer and information services, reaching $13 billion in 2023. The US, in turn, exports to India a diverse range of services from insurance and finance to audio-visual services. 

This positive trade balance of India in both goods and services is complemented by significant foreign direct investment (FDI) inflows from the US. From April 2000 to June 2024, the US accounted for 10% of India’s total FDI equity inflows. 

Recently, US companies have also invested in India’s supercomputer industry. Therefore, there is no doubt that any shift in US trade policies once Trump assumes office can impact India, positively and/or negatively.

There are four reasons for uncertainty over the future of India-US trade relations. First, the ‘Make in India’ campaign of Prime Minister Narendra Modi, despite its similarity with ideas like Trump’s ‘America First,’ can be used by both sides to impose trade protectionist measures. 

During his previous term, in 2018, Trump had imposed tariffs on steel and aluminium imports, which negatively impacted our exports. India, too, had hiked duties on products like apples, almonds, steel and chemicals exported by the US, over which Trump had expressed unhappiness in election speeches. 

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Tariff imposition measures like these would adversely impact bilateral trade, with India at a greater disadvantage if these continue.

Second, Trump’s anti-immigration approach and his flip- flop stance on H1B visas has kept the Indian technology sector worried. In his first term, H1B visa denial rates jumped from 4% to 17%, and L-1 visa denials increased from 12% to 28%.

Third, Trump’s retaliation to measures taken by India against US companies’ interests are difficult to predict. Any changes in FDI policy that impact US company mergers may encounter US retaliation in the form of its withdrawal of the Generalized System of Preferences , as has been seen in the past.

Fourth, unlike competing countries like Vietnam, Chile or Mexico, India does not have a trade agreement with the US, which could ensure a transparent and predictable trade regime. 

Trump has played a key role in weakening the World Trade Organization’s (WTO) dispute settlement process and has not shown interest in bilateral/mega-regional pacts either. 

Thus, with a weak WTO, while both India and the US have ample room to play around with tariff barriers and other trade restrictions, such measures will almost definitely harm businesses on both sides and lower trade and economic growth.

At the same time, Trump’s second term could be an opportunity for India. His distrust of China, goodwill among our top leadership, American companies’ interest in our growing market and the large Indian diaspora in the US offer an opportunity for trade and cross-border investment flows to flourish. 

Lowering trade barriers, harmonizing regulatory standards and establishing frameworks for digital trade would help bilateral trade grow and enable India to become a key player in US supply chains.

India should be well prepared to work with the new US regime. Multi-stakeholder consultations will help understand the issues that Indian industry faces in doing business with America, and these could be placed in the public domain through means like the United States Trade Representative’s trade-barrier report. 

Also read: Trump’s second term: Let’s hope his campaign was mostly rhetoric

Some sectors, like agro-processing, healthcare and renewable energy, where there is high potential to increase bilateral trade and investment, may be explored. 

US companies may be encouraged to source more from India and form partnerships with Indian companies. Autonomous tariff reductions by India on certain products in the next Union budget could improve India’s bargaining power.

We need targeted policies to support export efforts by small and medium enterprises and must also address the hurdles they face. 

With trade facilitation measures on both sides, strong business-to-business relations, trade complementarities and common geo-strategic interests, there are ample opportunities for India and the US to collaborate across sectors and strengthen commercial ties to make trade a critical driver of their economic growth and employment generation.

These are the authors’ personal views.