Monday, 19 May, 2025
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New Delhi’s best bet is broader market access, especially in China, but barriers persist. Expanding exports to Europe and bolstering manufacturing offer hedges, yet without quick solutions, India risks a widening trade gap and policy challenges.
Washington’s push to reset trade ties with India could pressure New Delhi’s external balances. India, a net importer, has leaned on a widening trade surplus with the US, which grew from $17.27 billion in 2019-20 to $35.32 billion in 2023-24. In the first eight months of FY24, the surplus stood at $23.26 billion, underscoring its role as a key buffer. If this cushion erodes, the overall trade deficit could expand by as much as 22 per cent, based on past trends.
The risks are real. America has consistently sought to narrow trade gaps, and India has not been immune to scrutiny. While recent tariff reductions and supply chain shifts favour some Indian industries, a more aggressive push by Washington could challenge New Delhi’s export-led ambitions.
Experts say New Delhi’s best bet is to push for greater market access elsewhere, particularly in China. Yet, years of negotiations have yielded little, as Beijing continues to restrict Indian exports in sectors such as pharmaceuticals and IT services. Diversification of export markets, deeper trade ties with Europe, and strengthening domestic manufacturing could be alternative hedges. But without a quick fix, India may have to brace for a larger trade gap—and the policy headaches that come with it.
Barely two months into his return to the White House, Trump has picked fights with China, Canada, Mexico, and the European Union. His threats of reciprocal tariffs on any country taxing US imports could take effect as soon as April 2, escalating tensions further.
Beijing has signalled its intent to retaliate, warning that American businesses will face the consequences. A tit-for-tat cycle would hurt US exporters, destabilise supply chains, and add to inflationary pressures.
The tariff war extends beyond economics. The European Union and Canada, facing direct US duties, could explore deeper trade alliances with China to counterbalance Washington’s aggression.
If past trade wars offer lessons, Beijing will likely impose targeted tariffs on politically sensitive sectors, while the EU and Canada may coordinate countermeasures. US companies reliant on global supply chains will lobby for exemptions, forcing Washington into difficult negotiations. Financial markets could react negatively, amplifying uncertainty.
Notably, New Delhi’s trade deficit with Beijing has long been a structural weak spot, accounting for nearly one-third of its overall goods trade gap for more than five years. In exceptional cases—such as the Covid-hit year of 2020-21—it has surged to as high as 43 per cent. Yet, this chronic imbalance might hold the key to mitigating the risks posed by Trump’s potential retaliatory tariffs on Indian exports to the US.
If New Delhi can halve its trade deficit with Beijing, it could more than offset any shortfall arising from Washington’s protectionist measures. However, achieving this goal is far from straightforward, given Beijing’s historical reluctance to open its market to Indian exports.
While India has made efforts to diversify its supply chains and boost domestic manufacturing under the “China-plus-one” strategy, reducing the deficit significantly will demand a mix of trade diplomacy and aggressive industrial policy. A shift in sourcing critical imports—especially electronics and machinery—towards other Asian suppliers could also help. However, in the absence of major breakthroughs in negotiations with China, cutting the gap meaningfully remains an uphill task.
