With the clock running out to April 2, India is staring at a pivotal trade challenge amidst increasing pressure from America. US President Donald Trump has imposed matching tariffs, effective next month, calling India a 'tariff abuser.' While the Union Commerce Minister was recently in Washington for talks, Trump asserted that India had committed to reducing tariffs, though no official word has come from New Delhi.
Union Commerce Minister Piyush Goyal's first week of March trip to the US was to prepare the ground for what will be intense negotiations over the next few months. The two countries have decided to close a bilateral trade agreement by September-October 2025. But with only three weeks to go before Trump's retaliatory tariffs kick in, trade policymakers and industries are dealing with uncertainty over the negotiations. The Indian government, in a statement to a parliamentary panel, maintained that "no commitments had been made to the US on the issue," as reported by The Times of India.
India has historically imposed some of the highest tariffs on cars in the world. Cars worth less than US$40,000 attract 60 percent duties, and cars worth more than this attract a 100 percent duty. The high tariffs were intended to safeguard local manufacturers like Tata Motors and Mahindra & Mahindra to ensure that international carmakers don't overwhelm the market.
The Indian government doubled down on its tariff policy in February 2023 by raising import tariffs on automobiles, motorbikes, and electric vehicles to support indigenous production under the 'Make in India' policy. Trump's administration has, however, labelled these as protectionist, calling for India to roll back or reduce tariffs on American-made automobiles.
The US is advocating for tariff-free access for US-made automobiles, especially for the case of Tesla entry to India, which has been long on the agenda of trade negotiations. While New Delhi has contemplated lowering tariffs to mobilise foreign investment to Indian shores, abolition is something it will be averse to. This cautiousness is a reflection of fear regarding the potential effect on indigenous automakers, who have been flourishing under the existing tariff protection.
The trade talks going on are not merely about cars. India and the US will negotiate more than 13,000 line items, of which at least 400 pertain to the IT industry. The intricacies involved mean that it is almost impossible to seal a holistic agreement by April 2. It has made the Indian industries jittery, as the deadline approaches and the fear of abrupt stoppages looms large should such a sudden call for retaliatory tariffs materialise along with an unagreed common structure in the United States.
Indian carmakers have expressed their alarm at any reduction in tariffs that would benefit foreign producers. Firms like Tata Motors and Mahindra contend that opening up the market too rapidly would smother indigenous innovation and erode their competitive advantage. Excessive tariffs have traditionally acted as a cushion, allowing such companies to build a robust indigenous footprint without direct competition from seasoned international players.
To Indian consumers, on the other hand, lower tariffs may translate to greater availability of global brands at lower prices. It may also attract more foreign direct investment in India's manufacturing industry, subject to policies that encourage domestic production instead of mere imports.
India has thrust itself into this high-stakes diplomatic milieu in which the Modi government finds itself trying to walk a tightrope. While the New Delhi government is keen to further good trade relationships with Washington, it has to think at the same time of protecting local industries and economic interests. Trump's hawkish threats over trade balances mean that any refusal to go along with Washington's demands will precipitate another round of trade sanctions, adding to the difficulty of bilateral relationships.
For the time being, India is playing a wait-and-watch approach. Although informal guarantees might have been exchanged during Goyal's visit, the Indian government has officially reiterated that no binding commitments were made. Such studied diplomatic positioning signals that New Delhi wishes to wring out maximum concessions prior to any announcement of tariffs.
With India stuck in its tariff predicament, we see this as a microcosm for a much larger trend wherein countries find it increasingly difficult to walk a fine line between protectionism and economic globalisation. The next few weeks will determine how this trade tussle develops between India and the US. A well-negotiated agreement can set the two countries to better bilateral relations and access to each other's markets. But any miscalculation on one or the other side-whether in the form of cutting tariffs too precipitously or adopting a stubborn stance can have huge economic and even political ramifications.
While India is plotting its course, changes are certain in the world trade order, and in the coming weeks, certain strategic choices will shape India's economic destiny over the decades.