Trump's Tariffs: Should India Retaliate?

JANUS VIEW

Trump Tariff Onslaught: Is It Time to Rewrite Global Trade Rules?

The first US president has firmly tied up all the credit for America’s Independence Day. What is a latter-day 47th president to do for similar glory, except to create another story of escape from bondage? So, president Donlad Trump has announced ‘Liberation Day’, the day he imposed high tariffs on imports into the US, to liberate his country, hostage to its own generosity in the form of low-cost access to the huge US market, the world’s richest, from nations that take advantage of that generosity.

It makes little sense to assess the impact of the tariff on Indian exports by looking at the tariff in isolation: it must be seen in relation to tariffs on products from other countries. The tariff interaction works in two different ways. One changes the relative competitiveness of different exporters to the US. Indian garments right now are not competitive vis-à-vis Bangla garments. Trump’s import tariff on Bangladesh is 37%. The lower, 26% duty on Indian garments means that the competitiveness of Indian garments vis-à-vis Bangla garments has actually improved.

Should India Retaliate?

That would be a mistake. India’s trade in goods with the US is important, but its trade in services is even more important. Information Technology (IT) services and IT-enabled services are vital for the Indian economy. The latter increasingly include Global Capability Centres, in which the world’s largest companies use India and its abundant scientific and engineering talent to carry out serious R&D and generate intellectual property, besides outsourcing managerial and technological functions. These service exports give India valuable soft power, those who deliver services onshore generate valuable remittance income, and most important of all, those who enter the knowledge-intensive service export industry often become the vehicles of social mobility for large parts of the country.

India does not want to risk the service sector exports to the US, which form the core of overall service exports from the country. Retaliation for the sake of retaliation carries the risk of dragging the service sector into the fray. This has to be avoided.

What would help is to mobilise support to create another global trading system that excludes the US and its MAGA wrecking crew. And India could play a role in this. 

CORE NUMBER

2.2 million

This is the total number of skilled drivers India is currently short of, according to Union Transport Minister Nitin Gadkari. Citing a World Bank report during a Lok Sabha session, Gadkari said the lack of trained drivers is directly linked to the country’s high rate of road accidents. To address this, the Centre has launched a Rs 4,500 crore scheme to set up 1,600 driving training institutes across India. The government hopes this will not only improve road safety but also generate over 60 lakh jobs in the process.

—🥺 Tariffs Hit, India Hustles! India’s textiles, engineering goods, electronics, and gems & jewellery sectors are among the hardest hit by Trump’s 26% tariff. Steel and auto-related goods face a steep 25% duty, squeezing competitiveness in the US market. The removal of the de minimis trade exception further impacts India’s e-commerce exports. However, pharmaceuticals, semiconductors, copper, and energy products have been spared. According to the Confederation of Indian Textile Industry (CITI), India’s 27% tariff remains lower than China (34%), Bangladesh (37%) and Vietnam (46%). While textiles and apparel account for 40% of India’s T&A exports to the US, already attracting a 10.28% tariff, cost competitiveness remains a challenge. 

—😮‍💨Tariff Jackpot! Despite the setbacks, some sectors are set to benefit. Textiles could see a boost as competitors like Vietnam, Bangladesh, and China face steeper tariffs, making India a more attractive sourcing hub. Electronics exporters are in a relatively better position, as Indian goods face lower duties than those from China and Vietnam. Pharmaceuticals remain a stronghold, exempt from the tariffs altogether. The possibility of tariffs being imposed by the US Administration on pharmaceuticals at a later stage cannot, however, be ruled out, warned Anuj Sethi, Senior Director, Crisil Ratings. Meanwhile, agriculture—especially seafood and rice—may gain a competitive edge, as rival nations struggle with even higher levies. Steel and aluminium dodged additional duties, but industry leaders warn of dumping risks from Asian producers facing restrictions elsewhere.

—🕌 Another Stellar Quarter for Luxury Real Estate! India’s real estate sector sustained a high growth rate in Q1 2025, The Economic Times reported. Bengaluru and NCR grew the most, at 16% and 12% respectively, and Ahmedabad, which grew at 2%, came last. It is luxury real estate that’s driving the country’s real estate boom, as The Core previously reported. Despite high growth numbers, the country’s affordable housing segment, both consumers and developers, is struggling due to a low housing supply and declining sales.

—💸 RBI May Cut Rates Soon. The Reserve Bank of India is likely to cut the repo rate in its April 9 policy review, even as banking liquidity has turned surplus, economists told Moneycontrol. The aim: to spur growth amid rising tariff pressures and sluggish credit transmission. Banks have struggled to lower lending rates due to high deposit costs and past liquidity tightness. With inflation below 4% and GDP risks rising, a rate cut could ease borrowing costs, especially for MSMEs and housing. Market estimates peg the likely cut at 25 basis points.

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas