New US Regime and India’s Trade Relations

Udayan Hazarika

(The writer can be reached at udayanhazarika@hotmail.com)

Mr. Donald Trump’s transitional team is now in command to take over the federal government step by step. Meanwhile, circles concerned in India are found to be actively engaged in debates relating to Mr. Trump’s attitude towards Indo-US bilateral relations and the probable policy initiative that he will pronounce after assuming charges. Speculation is active on this count in high places too, and the government of India is also not falling back to comment on the status of the Indo-US trade practices during the days of Trump’s first term. This is visible from the recent statement made by the commerce minister, Mr. Piyush Goyal, expressing India’s expectation from the new US administration. Mr. Goyal reiterated that India’s attitude towards the US’s friendship is not unknown to Mr. Trump’s administration. Prime Minister Modi has already congratulated Mr. Trump, saying that “the strength of the India-USA strategic partnership lies in our shared values and common interests.” However, both sides know it well that during the fag end of his last tenure, Mr. Trump reacted and described India’s role in the Indo-US trade as “tariff king,” which he meant seriously. Later, as his subsequent action, he terminated India’s preferential market access—generalised System of Preference (GSP)—to the US, alleging that India has not given the US “equitable and reasonable access to its markets.” Successive governments in the US have been maintaining good relations with India for the simple reason of India’s growing power and strategic location in terms of South Asia and the Indian Ocean.

Mr. Goyal, in his recent press meet, said, “We are looking forward to a very deep and substantive engagement with the new US administration.” Undoubtedly, this of Goyal’s statement came at a time when only a few days ago Mr. Trump reviewed his statement indicating India as a “very big abuser” of tariffs.

The ‘America First Policy’ of Mr. Trump is a serious agenda to make America first. It is formulated, specifying 10 pillars, and the first pillar itself states about the changing attitude of the US towards the countries so far gaining from trading with it. It reads, “Make the greatest economy work for all Americans.” This pillar has seven chapters, of which the 3rd chapter reads, “Negotiate trade deals that protect American workers and consumers and protect our national security.” It states that “an America First approach to trade means pursuing and enforcing policies that result in a level playing field for American businesses and workers to compete on the world stage. This vision recognizes that free, fair, reciprocal, and balanced trade is a fundamental pillar of a pro-growth economic policy agenda. Taking cue from this policy statement, Mr. Trump on December 16 stated that “if they tax us, we tax them. The same amount they tax us. We tax them. And they tax us. Almost in all cases, they are taxing us, and we haven’t been taxing them.” (The ET, December 18).

If this is to materialise in toto, India will inevitably face an increased customs duty for exporting goods like automobiles, textiles, pharmaceuticals, gems and jewellery, and marine products to the US. So far, India’s trading with the US is giving benefits to India. In 2023, the US has trade deficits with India amounting to USD 28.30 billion in 2022-23. Till 2023, the US remained India’s best trade partner, with the volume of trade accounting for more than 190 billion. In the export of services from India, initially, although there were some controversies regarding Mr. Trump’s critical view about the H-1B visa programme under which skilled workers enter the US, now reportedly that problem is over as Trump expressed his satisfaction about the working of the H-1B visa system. Cancellation of this system would have put the Indian IT sector in trouble as it would have impacted the movement of the skilled IT professionals from India.

India’s reliance on the US has been growing steadily over the last decade. In 2014-15, India’s overall exports (merchandise and services combined) to the US were to the tune of USD 46.85 billion, which rose to USD 49.86 billion in 2017-18 (the year of the beginning of Mr. Trump’s first presidency). India’s merchandise exports to the US in 2019-2020 (the penultimate year of Mr. Trump’s first presidency) were USD 53.1 billion, which rose by 46 percent to USD 77.5 billion in 2023-24. In the same vein, imports from India also grew during the same period from USD 35.8 billion to USD 42.2 billion. The US happened to be the largest trading partner of India in FY 23.

In the current fiscal year (during April–October), India’s exports to the US stood at USD 47.24 billion, registering a rise of 6.3 percent against the same period of last year. The import also grew by 2.46 percent to USD 26 billion. The available data shows that the volume of US-India bilateral trade was estimated to be USD 191.8 billion in 2022 (of which exports were to the tune of USD 73 billion and imports were USD 118 billion). The bilateral trade in goods between the two countries stood at USD 120 billion in 2023-24 as against USD 129.4 billion in 2022-23. The fall is mainly due to the lowering of global demands for exportable items. The commerce minister is expecting that despite global challenges, India will be able to surpass the USD 800 billion mark in exports in 2023-24 as against USD 778 billion in 2022-23. As against this expectation of Mr. Goyal, the Global Trade Research Initiative (GTRI) has estimated that India’s total exports will touch the level of USD 814 billion. As per available statistics, the cumulative overall exports during April-October 2024 are estimated at USD 468.27 billion, as compared to USD 436.48 billion in April-October 2023, with an estimated growth of 7.28 percent. Thus, 58.5 percent of the expected target of the commerce minister has been achieved to date. For the remaining portion of the target, there is still time to fulfil the target. But in view of the recent depreciation of the value of the rupee from 83.8 to 85.8 p. to the dollar in about three months’ time, this would be a difficult task this time. As global trading takes place mainly in dollar terms, present depreciation will be bound to affect the prospect of India’s exports. Experts are expecting that the status of the falling rupee will continue till Mr. Trump announces his maiden policy statements of his second term. However, the government should restrain itself from intervening to fix the exchange rate hurriedly and rather leave it to the market to fix.