MAY 13, 2025
Right after coming to power, US President Donald Trump started shaking global trade with his tariffs. When he singled out China for the steepest tariffs, India saw hope for its dream of becoming a major manufacturing power. Trump’s trade war with China made space for India’s manufacturing sector to grow further as India could begin to fill the China gap in America’s imports to some extent and more American companies manufacturing within China were likely to shift operations to India to take benefit of lower tariffs and a trade deal which was set to become Trump’s first one with a country. Apple CEO Tim Cook said last Thursday that the majority of iPhones sold in the US in the current fiscal quarter will be sourced from India,
However, indications now are that India may not get as much benefit for its manufacturing as it hoped to out of Trump’s tariffs policy. Suddenly, India-China trade bonhomie seems to be in jeopardy.
India planning to hit back at Trump’s tariffs
Just when India and the US seem to have made a lot of progress on trade, India is planning to put tariffs on American goods in response to Trump tariffs. Reuters has reported that India is looking at levying import duties on some products made in the US to counter Washington’s tariffs on steel and aluminum products, a document submitted to the World Trade Organization shows. “The proposed suspension of concessions or other obligations takes the form of an increase in tariffs on selected products originating in the United States,” the document dated May 12 said.
It did not say what kind of products might be subjected to tariffs. In March, the US imposed 25% levies on steel and aluminium imports – an extension of tariffs first imposed in 2018 during Trump’s first term. India, the world’s second-largest producer of crude steel, said in its document to the WTO that the measures would affect $7.6 billion worth of India-made products imported into the US.
What makes India’s move at the WTO surprising is that it comes when India and the US are supposed to have removed most wrinkles for a smooth trade deal. India and the US are negotiating a Bilateral Trade Agreement (BTA) with the two sides expected to conclude an interim arrangement by July 8, ahead of the additional 26% reciprocal tariff on Indian goods entering the US coming into effect.
The US-China trade deal
When it was expected that India would be the first country to strike a trade deal with the US, Trump announced a trade deal with the UK and later with China. Trump on Monday said Washington achieved a “total reset” in trade relations with China, after details of trade deal between the two nations were made public.
The US and China also announced a temporary truce in their tariff battle. As part of the arrangement, both countries agreed to sharply reduce tariffs for a 90-day period to allow further negotiations. The US will scale back duties on Chinese goods to 30 per cent, down from as high as 145 per cent, while China will reduce its tariffs on American imports to 10 per cent.
A US-China trade deal will surely hit India’s manufacturing prospects because India had hoped to thrive on the US-China tensions. The US-China deal is likely to intensify competition for Indian exporters in markets like Southeast Asia, Africa, and Latin America where New Delhi recently made inroads, capitalizing on US-China trade disruptions, the Federation of Indian Export Organisations said.
The US-China trade deal has significantly reduced the tariff gap between India and China, potentially impacting India’s competitive edge in attracting companies looking to relocate from China. According to Ajay Srivastava, founder of the Global Trade Research Initiative, the US-China agreement to withdraw reciprocal tariffs for 90 days has brought tariffs closer to parity, undermining the “China Plus One” strategy that benefited India. The ‘China Plus One strategy typically involves companies diversifying their investments to countries other than China.
“While low-investment assembly operations may linger in India for now, deeper manufacturing–the kind that builds real industrial ecosystems–may stall or even return to China. Investors are watching the U.S. tilt, and many will hesitate to commit unless India can lock in a competitive advantage,” he argued in his note.
Are India-US ties straining?
Delay in India-US Bilateral Trade Agreement (BTA) while the US cuts deals with the UK and China and now India going to WTO to slap tariffs on American goods indicates all is not well between the two countries. Trump’s victory was seen to be net positive for India despite his string stance on trade. But now it seems tensions are rippling through the ties.
The India-Pakistan conflict, which Trump has claimed he diffused through the US mediation, has exposed issues in India-US relations. Trump had claimed that he warned both nations that the US would suspend trade ties if they did not halt their military operations against each other, suggesting his intervention helped push for de-escalation. “I said. Come on, we’re going to do a lot of trade with you guys. Let’s stop it, let’s stop it. If you stop it, we’re doing trade. If you don’t stop it, we’re not going to do any trade. People have never really used trade the way I used it. By that, I can tell you, and all of a sudden they said. I think we’re gonna stop, and they have,” he claimed.
However, the Indian government rejected Trump’s mediation claims between India and Pakistan, saying that there was “no reference to trade” during talks with US officials. “India rebuts the United States’ claim. After Operation Sindoor commenced, US Vice President JD Vance spoke to PM Modi on 9th May. US Secretary of State, Marco Rubio spoke to EAM Dr S Jaishankar on 8th May and 10th May and to NSA Doval on 10th May. There was no reference to trade in any of these discussions,” ANI reported, citing sources. Prime Minister Narendra Modi said yesterday that India has not entered into a ceasefire with Pakistan but has merely suspended military action.
The differing versions of how India and Pakistan arrived at what the US calls a ceasefire but India insists is an understanding to stop military action shows sharp differences have emerged between the two countries considered close allies. India’s WTO move came just when these differences are playing out which indicates trade ties might be under geopolitical strain.
Courtesy/Source: The Economic Times / PTI
