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US Tariff Hikes Open Trade Opportunities for India
Context:
The United States’ decision to impose reciprocal tariffs on its trading partners starting April 2 is expected to create new opportunities for India, according to a preliminary analysis by NITI Aayog.
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- With Washington imposing additional 20-25% tariffs on imports from key trade partners such as China, Mexico, and Canada, India could benefit from shifting trade dynamics, as these nations collectively account for nearly 50% of the US’ total imports, which exceed $3 trillion.
Potential Gains for India Amid US Tariff Policy Shifts
- NITI Aayog Estimation: NITI Aayog Programme Director Pravakar Sahoo stated on Friday that the organisation is conducting a disaggregated data analysis to assess the potential impact on Indian exports.
- While he did not specify which sectors might gain or lose from the tariff changes, he emphasised that there are significant opportunities for India to expand its market presence in the US.
- Protectionist Policy of USA: The US has already imposed 25% import duties on steel and aluminum products as of March 12, with an additional 25% tariff on automobiles set to take effect on April 3.
- Since taking office in January, President Donald Trump has pursued a protectionist trade policy under his “Make America Great Again” agenda.
- Although India was initially not granted any tariff exemptions, Trump recently suggested that some countries may receive leniency on April 2, leaving room for potential concessions.
India’s Trade Position in the Global Market
- The second edition of NITI Aayog’s “Trade Watch Quarterly” report, covering the July-September quarter, sheds light on India’s global trade standing.
- The report highlights that India’s export strength lies in products with relatively low global demand, limiting its competitiveness in high-value sectors.
Key findings include:
- The EU, Northeast Asia, North America, and ASEAN collectively account for 77% of global trade and 74% of global imports.
- However, India’s trade with these regions is only 8%, fulfilling just 6% of their import demand.
- India’s exports of electrical machinery, mineral fuels, and nuclear reactors align with global import trends, yet its market share remains just 1-2%, with China and the US as dominant competitors.
- In contrast, India has a 44% trade share with South Asia, East Africa, and Southern Africa—regions that account for only 2% of global trade.
Challenges in India’s Textile Sector
- The report also highlights concerns regarding India’s stagnant textile and apparel exports, which have remained at approximately $40 billion for the past six years, growing at a sluggish 0.8% annually—far below the global industry’s 3.5% growth rate.
- This slow expansion underscores India’s need for greater competitiveness in high-demand global markets.
Way Forward
- With shifting US trade policies, India has an opportunity to capture market share in sectors affected by tariffs on China, Mexico, and Canada.
- However, the real challenge lies in strengthening India’s presence in high-value global trade regions, improving export diversification, and enhancing competitiveness in key industries.
As the US finalises its reciprocal tariff measures, India’s trade strategy will be crucial in capitalising on emerging opportunities and mitigating risks associated with evolving global trade dynamics.
