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The return of Donald Trump to the White House signals a significant shift in global trade dynamics, particularly for India. His administration’s strong stance on trade deficits and reciprocal tariffs poses challenges that require strategic navigation. The looming threat of increased tariffs on Indian exports—similar to previous tariff hikes on steel, aluminum, and other goods—suggests that India must prepare for an evolving trade policy landscape.

At the same time, India’s position in global trade is complicated by its balancing act between reducing tariffs to appease the United States and protecting its domestic industries, particularly from an influx of Chinese imports. The challenge is twofold: maintaining favorable trade relations with the U.S. while safeguarding India’s Micro, Small, and Medium Enterprises (MSMEs) from potential harm caused by increased Chinese competition.

Understanding Trump’s Trade Stance and Its Implications for India

Donald Trump’s economic policies have been shaped by a belief that trade deficits arise from unfair practices rather than natural comparative advantages. During his first term, the U.S. imposed tariffs on numerous countries, including China, under the justification of correcting trade imbalances. India was not spared, as the U.S. removed it from the Generalized System of Preferences (GSP), impacting several industries that benefited from tariff-free exports to the American market.

Trump’s return is expected to reinforce these protectionist policies. Given the U.S. trade deficit with India, which stands at approximately $60 billion, India could once again be targeted for higher tariffs. This means Indian policymakers must be proactive in formulating trade responses that balance diplomacy and economic pragmatism.

The Tariff Dilemma: To Raise or Reduce?

One of India’s biggest policy challenges in this scenario is deciding whether to lower tariffs to maintain smooth trade relations with the U.S. or to maintain higher duties to protect domestic industries from a flood of Chinese imports.

Reducing Tariffs: Lowering tariffs to please the U.S. might encourage better trade relations and prevent India from being placed on an unfavorable trade list. However, such a move could expose Indian markets to an influx of cheap Chinese goods, undermining local manufacturers and MSMEs.

Maintaining or Raising Tariffs on Chinese Goods: This could protect domestic industries but would likely prompt the U.S. to impose reciprocal tariffs on Indian exports, making them less competitive in the American market.


Striking a balance requires a calculated trade policy that takes into account the long-term benefits of trade diversification and industrial strengthening.

The Role of China and the ‘China Plus One’ Strategy

With growing geopolitical tensions between the U.S. and China, India has an opportunity to position itself as an alternative trade and manufacturing hub for global companies seeking to diversify their supply chains. The “China Plus One” strategy, which encourages businesses to shift production away from China, is an avenue India has yet to fully capitalize on.

Foreign Direct Investment (FDI) Opportunities: India can offer incentives for companies looking to relocate their manufacturing base from China. Streamlining policies, reducing bureaucratic hurdles, and improving infrastructure can help attract global investments.

Trade War Benefits: While the U.S. continues its trade confrontation with China, India can leverage this to negotiate preferential trade agreements that benefit Indian exports while presenting itself as a stable and reliable alternative.


Despite these opportunities, India must also be cautious, as overreliance on anti-China sentiment alone will not sustain long-term economic growth.

Strategic Negotiations with the U.S. and the Global West

India’s best approach to handling Trump’s protectionist policies is through skillful negotiation. India must frame its arguments in terms that align with American strategic interests:

1. Security and Indo-Pacific Cooperation: Emphasizing India’s role as a democratic counterbalance to China in the Indo-Pacific region can be leveraged to negotiate better trade terms.


2. Job Creation in the U.S.: Highlighting the contributions of Indian companies to the American job market (such as IT giants like Infosys and Tata Consultancy Services) can help India present itself as a valuable economic partner.


3. Selective Tariff Adjustments: Negotiating sector-specific tariff relaxations, rather than blanket reductions, can help maintain trade relations without overly exposing Indian industries.

Navigating a Complex Trade Environment

The next few years will be crucial for India’s trade strategy. Navigating the U.S.-India trade relationship under Trump’s presidency will require careful balancing of economic policies, strategic partnerships, and diplomatic engagements.

By leveraging its geopolitical position, capitalizing on the China Plus One shift, and negotiating from a position of strength, India can mitigate the risks of retaliatory tariffs while securing long-term trade benefits. However, failing to act decisively could lead to increased economic pressures, making it essential for policymakers to craft a forward-looking trade strategy that benefits both domestic industries and international trade partnerships.