Introduction to US-India Trade Tensions
When the Indian Prime Minister Narendra Modi made a state visit to the United States in June 2023, the pomp and pageantry reflected how sharp the US team was to promote the strong connections of the federal states. President Joe Biden at the time stated, "I believed for a long time that the relationship between the United States and India will be one of the determining relationships of the 21st century."
Deterioration in Relationships
However, the situation has changed dramatically six months later. From August 27th, most of the Indian goods that go to the US market are now subject to a 50% tariff, one of the highest in the world. The tensions quickly escalated after the United States and India failed to reach an agreement in April during trade talks following Trump’s important announcement of tariffs against trading partners. Matters worsened when Trump announced an additional 25% tariff on India for its purchases of Russian oil.
Causes of the Deterioration
Rick Rossow, who held the chairman of India and the economic economy in Asia in the Center for Strategic and International Studies (CSIS) in Washington, believes that Trump has the right to describe India’s "protectionism", but the instruments and rhetoric used to treat the problems are "hard" and are increasingly causing political damage. Sushann Singh, lecturer for South Asian studies at Yale University, thinks that the collapse of negotiations was associated with the India-Pakistan conflict that took place in May this year and Trump’s role in ceasefire negotiations.
Impact on India
India’s economy is now under pressure from the tariffs. The United States is the largest trading partner, with India exporting around $87 billion worth of goods to the US in 2024. The main exports of India to the US include sectors such as textiles and jewelry and gemstones. The Global Trade Research Initiative believes that some of these sectors could see a massive collapse of export volume in the next 12 months, which may endanger hundreds of thousands of jobs.
Impact on the US
The US exported around $42 billion worth of goods to India in 2024, less than half of the amount that went in the other direction. While India will clearly suffer more than the United States, the US will also pay a price, especially in the form of a large expected decline in Indian students who come to US universities. Gary Hufbauer, an international trading expert, stated that an economic factor has now been threatened that previous US plans to move some production from China to India.
Geopolitical Implications
The trade wars put Modi under great political pressure at home. Singh pointed out that, although some Indian workers were forced to leave the United States as part of Trump’s immigration policies, the prominent tech leaders of Indian-US had not spoken against the US President. However, he admitted that the great risk of Trump was more geopolitical than economic. "You could have a situation in which China essentially appears as this great Asian power, with India being ready to take on a somewhat lower role, and you could do geopolitically – that would be very disadvantageous for the United States."
Possibility of a Deal
India and the United States could still conclude a trade agreement, and Sushant Singh believes that New Delhi absolutely wants to do one. Rossow believes that thawing in the tensions is in the interests of the two sides. "India is about to become the third largest economy in the world," he said. "With our common concerns about China’s rise, a strong partnership for regional security and common growth will be of crucial importance."
