The Implications of Donald Trump’s Presidency for India’s Economy
Written by Surya Ambatipudi; Edited by Andrew Ma
Published on April 12th, 2024
Tariff Diplomacy and Indian Indifference
The doors of President Trump’s second term opened with full force, raising eyebrows and ruffling feathers both domestically and abroad. In less than one hundred days, one hundred executive orders were passed in the newly redecorated Oval Office, aiming to fulfill the administration’s “America First” promises. Three of these executive orders issued tariffs against China, Mexico, and Canada, backed by the nascent usage of the International Emergency Economic Powers Act (IEEPA). Despite suspensions and fervent economic fears, China and Canada retaliated with tariffs on agricultural products and energy respectively, sparking international concerns over a potential trade war. Amidst this backdrop of butted heads and gritted teeth, the gaudy Air India One touched down on American soil on February 12, 2025, as Prime Minister Narendra Modi arrived in Washington to discuss the future of relations with the United States. The two strongman leaders shook hands and exchanged friendly words, while committing to increased bilateral trade, defense cooperation, and mutual security. Modi’s visit undoubtedly solidified India’s position as a valuable partner for the United States with shared interests and goals. However, it was simultaneously representative of Modi’s strategy to prevent Trump’s recklessness from affecting India’s economy and stability through diplomatic talks.
“Make in India” or “America First”?
Trump and Modi are often portrayed side by side as iron-fisted and strong-willed, an image reinforced by their nationalism and cult following. Both are painted as protectionist leaders who emphasize domestic production for economic growth. Their similarities inevitably cause them to clash since their national self-interest overrides collaboration within the global supply chain. India’s trade policies under Modi and his “Make in India” initiatives have been, and some would say excessively, strict. The average tariff rate on imports flowing into India stands at 13%, considerably higher than neighboring China, which settles at 3%. The philosophy behind such robust protectionism stems from the government’s desire to facilitate growth in the domestic manufacturing sector. India, unlike China, has a history of tedious licensing and corralled productive activity which has prevented Indian manufacturers from sufficiently integrating into the global economy. Trump is not unaware of India’s restrictive trade policies and has accused it of being an “abuser” that boasts a trade surplus with the United States. With fresh fears of Trump’s tariffs afoot, however, India’s economic policy is beginning to shift in a more liberal direction. Before Modi visited Washington, Delhi cut import duties on goods that included motorcycles and alcohol, with additional cuts expected in the near future. India is also wary of being caught in the crossfire of a potential trade war between the United States and China, which could negatively influence market mechanisms and lead to higher costs and shifting supply chains. To some degree, Modi’s “Make in India” ambition must take into account Trump’s “America First” compulsion. Ultimately, India will likely continue to lower restrictive trade barriers between itself and the United States in order to maintain an economically secure position. It has already begun to pursue free trade agreements with the European Union, the U.K., and other countries, demonstrating its desire to open up to the Western market and devote itself to neutral, reciprocative economic collaboration.
Playing the Trade Game
Historically, India and the United States have enjoyed healthy trade relations that witnessed major growth throughout the 21st century. Under President Obama, trade flows in goods and services between the two countries increased by 90%, which paralleled a general growth in India’s GDP and GDP per capita. Trade ties were also bolstered during Obama’s visit to New Delhi in 2015. Currently, the United States is India’s third-largest investor and emerged as its largest trading partner overall, followed by China and the United Arab Emirates. India scratches the top ten trading partners on the U.S.’s balance sheet, and has been steadily climbing upward. During Trump’s first term, India faced its first major setbacks in the otherwise exponential success of its commercial interests in the United States. Trump removed the country from special protections given to developing countries in 2019 and began his campaign of pushing India to deregulate, which spilled over into his second term. India’s current, steady response to Trump’s tariffs encourages cooperation and inspires hope for the longevity of U.S.- India trade relations if its monetary policy continues to take a compliant approach. Recent negotiations between trade representatives from both Washington and Delhi took place in late March, which ended in satisfied murmurs and handshakes within both delegations. They sought to tackle a widening trade deficit, with American economists criticizing India’s strategy of exporting far more than it imports, a strategy that prompted Trump to threaten the country with tariffs in the first place. Addressing the root of Trump’s complaints and tackling them through diplomatic measures and compromise is India’s only way of salvaging healthy trade relations without succumbing to economic pressure. As the effects and conditions of Trump’s second-term policies continue to unfold, India will remain concerned but vigilant, ready to respond to burgeoning trade crises.
Various other factors point towards a stable India-U.S. economic relationship in the future, despite recent complications. Discussions surrounding large-scale investments in the manufacturing and finance sectors of the Indian economy have sparked within prominent global multinational enterprises. Apple and its primary supplier, Foxconn, for example, have invested in manufacturing plants in Tamil Nadu and Karnataka, in hopes of establishing India as an alternative to China. Though still heavily reliant on the Chinese supply chain, India’s role as a manufacturing hub continues to materialize amongst tech and retail giants. The U.S.-China rivalry is a net benefit to Indian industries, since the country’s large employable population makes it a prime destination to avoid further entrenchment in China. India also benefits from an essential defense partnership with the United States, engaging in training, military exercises, and foreign military sales. Defense cooperation incentivizes American companies to invest in their allies, which puts India in an advantageous position as tensions between the Western world and China proliferate. In terms of infrastructure development, facilities management, and port efficiency, the country has a long way to go, but it is generally regarded as a promising business destination, which protects it from overly aggressive economic measures utilized by the Trump administration for other countries. India must be careful when navigating its relationship with an unpredictable United States government and must channel the inevitability of globalization as its strength.
