Is India's Booming Trade with the US at Risk? Here’s What You Need to Know

India’s thriving trade relationship with the United States could soon face a major hurdle. With the Trump administration set to implement its “Fair and Reciprocal Plan” on April 2, Indian exporters may have to brace for significant tariff hikes. The move, aimed at balancing trade imbalances, is likely to impact multiple emerging economies, with India among those most at risk.

A recent report by Fitch Ratings warns that countries imposing higher tariffs on U.S. exports than they currently face on imports into America could see severe trade consequences. With India’s strong trade ties with the U.S., sectors like textiles, pharmaceuticals, and information technology services may be directly affected by these new tariffs.

What’s at Stake?

The repercussions of this policy shift could be felt far and wide. The United States has been vocal about its stance on what it perceives as “unfair” trade practices, and this policy move is set to level the playing field—albeit in a way that might not favor emerging economies.

According to Fitch Ratings, several key U.S. trading partners could be at high risk of facing new tariffs under the reciprocity plan. The report specifically mentions India, Brazil, Thailand, Malaysia, South Africa, Turkey, Vietnam, and Indonesia as the most vulnerable economies.

For India, this move could have a significant impact on several industries, particularly textiles, pharmaceuticals, and information technology services—sectors that have enjoyed a strong export relationship with the U.S. for years. With added tariffs, Indian exporters might struggle with increased costs, potentially leading to price hikes, reduced competitiveness, and strained trade relations.

The Numbers Behind the Concern

Fitch’s detailed analysis compared 2023 tariff rates faced by U.S. exporters in trade partner markets against the tariffs imposed on imports coming into the U.S. from these same nations. The findings revealed stark disparities, which, under the new reciprocity policy, could lead to higher U.S. tariffs on goods from these nations.

For example, while India levies tariffs on American agricultural and industrial products at higher rates, Indian exports like textiles, chemicals, and machinery currently enjoy relatively lower tariffs when entering the U.S. The impending tariff adjustments could significantly impact Indian exporters who rely on stable trade relations with the U.S.

Implementation and Political Intentions

The Trump administration’s tariff plan is set to take effect on April 2, marking a significant step in the former president’s broader economic vision. Since his re-election, President Trump has reaffirmed his commitment to rectifying trade imbalances, emphasizing that the United States should not be at a disadvantage when it comes to global commerce.

His administration argues that matching tariffs imposed by other nations is a necessary step to ensure fair and balanced trade. However, the move could have wider consequences, including retaliatory actions from affected countries, potentially leading to a global trade war.

Can Diplomacy Prevail?

While the deadline for the tariff policy’s implementation looms, diplomatic efforts are still underway to prevent major trade disruptions. India and the U.S. have been engaged in negotiations aimed at finding a mutually beneficial trade agreement that could soften the impact of the new policy.

Earlier this month, India’s Commerce Minister Piyush Goyal visited Washington, signaling India’s proactive approach in addressing trade concerns. His visit followed commitments made by Prime Minister Narendra Modi and President Trump to work towards a broader Bilateral Trade Agreement (BTA) by fall 2025. This agreement aims to take a holistic view of trade relations, rather than merely adjusting tariffs on specific products.

While negotiations offer a glimmer of hope, trade experts warn that with the policy implementation date fast approaching, any agreements reached will need to be swift and effective to prevent market disruptions.

What Lies Ahead for Indian Businesses?

If the policy goes into effect as planned, Indian businesses exporting to the U.S. will likely face increased costs. The question remains—will they absorb these costs, pass them onto consumers, or explore alternative markets? For now, uncertainty prevails.

Moreover, if India retaliates with countermeasures, the trade equation could become even more complex, impacting American businesses relying on Indian imports. This could lead to a ripple effect across various industries, from technology and pharmaceuticals to automobiles and textiles.

The Trump administration’s reciprocity plan is poised to change the way the United States engages with key trading partners, with emerging economies like India standing at the forefront of potential challenges. As the April 2 deadline approaches, all eyes are on trade negotiators to see whether diplomacy can prevent a full-blown trade dispute.

For Indian businesses, the next few weeks could determine the trajectory of their trade relations with one of their most significant global partners. Whether through negotiation or adaptation, the Indian startup and export community must prepare for potential disruptions and chart out a strategy to navigate these uncertain waters.