Prepare to hit the US with tariffs where it hurts, says expert body advising the government

The strategy

The strategy is expected to give India negotiating leverage in the ongoing trade talks, at a time the US President has doubled down on imposing retaliatory tariffs from 2 April, which casts a shadow of uncertainty over India’s access to the US market. India should consider such strategic retaliatory tariffs on goods from the US, if the trade tensions were to escalate once again, the group has said.

Products such as nuts, fruits, beverages and spirits, dye extracts for leather, plastic articles, pulp of wood, steel, aluminium and precision instruments hold considerable significance for US trade in India. In addition, mineral fuels, slag, and ash from the US enjoy significant market access in India and contribute to the sizeable US trade surplus in mining products.

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A strategic tightening of India’s tariff policy in some of these sectors would not only recalibrate the volume of bilateral trade but further enhance India’s trade surplus with the US, said Sachin Chaturvedi, director general at Research and Information System for Developing Countries (RIS). He heads the group of experts. The group has submitted its report to the government.

Ahead of the Trump administration’s 2 April deadline for reciprocal tariffs to go into effect, India’s commerce minister Piyush Goyal is currently engaged in trade talks in the US. The two sides are negotiating a bilateral trade agreement that will allow for selective coverage of key areas such as tariffs, non-tariff barriers (NTBs), and trade facilitation. This agreement will be fully compliant with World Trade Organization (WTO) provisions, ensuring access to the dispute settlement mechanism (DSM).

Despite facing coercive trade measures from the US under the second Trump administration, India has so far opted for a conciliatory approach, by incorporating some of America’s concerns into its policies through the 1 February Union Budget. This marks a departure from India’s stance under the first Trump administration, when retaliatory tariffs were imposed in response to heightened US duties on steel and aluminium.

An official spokesperson for the commerce ministry said that the government is not speaking on the matter as of now.

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The group has cautioned that the final-goods sector could become the most vulnerable target for trade scrutiny and potential punitive measures against India by the Trump administration. The US has a pronounced trade deficit in this sector, which comprises 37.5% of the bilateral trade and a striking 79.3% of India’s overall trade surplus with the US.

Indian exports

India’s exports in this sector are dominated by 44 products that span 17 trade chapters, including six agricultural and 38 manufacturing items. Specific products in categories such as textiles, leather, footwear, gems and jewellery, textiles, pharmaceuticals, and fisheries are particularly vulnerable to targeted trade actions due to their strategic importance and competitive positioning.

Any trade actions targeting them could significantly affect India’s market access in the US. Further, if the US enforces trade restrictions on high trade surplus trade partners such as China, Germany, Japan, South Korea, and Mexico, India may face indirect consequences. In particular, measures against China, Canada, or Mexico could have a cascading impact on India’s exports, even if India is not directly targeted.

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In 2023, bilateral trade between India and the US reached $117.8 billion, with India importing goods worth $42 billion and exporting $75.8 billion, resulting in a significant export surplus of $33.8 billion. India, despite registering a trade surplus of $33.8 billion with the US in 2023, contributed a modest 3.2% to the overall deficit, making it the ninth-largest trade surplus partner of the US. In contrast, China retained its position as the US’s largest trade deficit partner, responsible for over 30% of the total US trade deficit.

“By imposing tariffs, Trump is resorting to the time-tested strategy of the US of erecting barriers to exports from other countries, in order to coax them to come to the negotiating table and accept even the most unreasonable demands of the US business and trade," said Abhijit Das, former head of Centre of WTO Studies at the Indian Institute of Foreign Trade, and a long-time international trade negotiator for India.

Historical context

He said that the US had previously unleashed this strategy during 1986 - 1993 and arm-twisted Brazil, India and Thailand to agree to the agreement on trade-related aspects of intellectual property rights.

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India’s “response should be that we announce that in respect of intellectual property rights held by Americans, India will henceforth not respect those intellectual property rights", said Das. 

“In particular, when it comes to patents in the pharmaceutical sector, India could say very clearly that the issue of tariffs and the issue of intellectual property rights in particular, the shift from process patent to product patent was part of a compact, which is technically called a single undertaking at the WTO. And since the US is not willing to uphold its side of the compact in respect of tariffs, India would feel free to revert back to the system of process patents in respect of pharmaceuticals for IP held by US," Das added.

He, however, cautioned that in selecting products for retaliatory measures, a consideration will have to be to leave out products where India is dependent on the US for sourcing those items, or it will amount to shooting ourselves in the foot.