India-US Trade Data: How a US-India Tariff War Will Impact India's GDP

In recent news, President Trump has added India to the list of countries that he plans to strike with tariffs. This move comes after accusations of India imposing high tariffs on US products, leading to threats of reciprocal taxes on Indian goods. With the US being India's largest trade partner, a full-scale tariff war between the two countries could have significant implications for India's economy.

According to US import data, $87.28 billion was the total value of US imports from India in 2023. According to India-US trade data, Indian exports to the US or the US imports from India range from electronics and machinery to textiles and medicines, serve a variety of industries within the American economy and make a substantial contribution to the two countries' overall trade balance. Let’s dive into the details of how this tariff war could impact India's GDP in the next fiscal year with a major focus on India-US trade data in particular.

What are the top 10 US imports from India: India US Trade statistics 

India’s export portfolio to the US spans diverse sectors. The following products emerged as the top US imports:

Pharmaceuticals – $10.89 billion

Precious stones and metals – $10.19 billion

Petroleum products – $2.88 billion

Telecom instruments – $2.2 billion

Ready-made garments – $1.8 billion

Electrical machinery and equipment – $12.07 billion

Organic chemicals – $3.86 billion

Textiles and apparel – $2.92 billion

Articles of iron or steel – $2.88 billion

Vehicles – $2.70 billion

Background

  • Tariff War Initiation: On December 17, President Trump singled out India for its high tariffs and indicated that he would impose taxes on Indian products as a response.

  • Bilateral Trade: The US is India's largest trade partner, with bilateral trade amounting to nearly $120 billion in the most recent fiscal year. This figure slightly surpasses India's trade with China.

Impact of US Tariff War on India's GDP

  • 0.3% Reduction: A full-scale tariff war with the US is expected to shave off 0.3% of India's GDP in the next fiscal year.

  • Economic Slowdown: The implementation of reciprocal taxes on Indian goods could lead to a decrease in exports and an overall economic slowdown.

  • Uncertainty: The unpredictable nature of tariff wars can create uncertainty in the business environment, leading to reduced investments and economic growth.

Mitigation Strategies for India-US Trade

  • Diversification of Trade Partners: India can explore opportunities to diversify its trade partners and reduce its dependence on the US market.

  • Negotiation and Dialogue: Engaging in dialogue with the US to address tariff concerns and reach a mutually beneficial agreement.

  • Policy Reforms: Implementing policy reforms to make the Indian market more attractive to foreign investors and reduce trade barriers.

Long-term Implications

  • Impact on Foreign Investments: A prolonged tariff war with the US could deter foreign investments in India, leading to slower economic growth and development.

  • Geopolitical Relations: Strained economic relations with the US could have broader geopolitical implications for India's foreign policy and strategic alliances.

Conclusion

In conclusion, a full-scale tariff war with the US could have significant repercussions on India's economy, including a reduction of 0.3% in GDP growth and increased uncertainty in the business environment. Indian exports to the United States have increased at a compound annual growth rate (CAGR) of 10.3% throughout the past thirty years. The United States has emerged as a vital market for Indian exports, exhibiting consistent expansion. India must explore mitigation strategies such as diversifying trade partners, engaging in dialogue with the US, and implementing policy reforms to navigate this challenging economic landscape.