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Tariffs

India's Strategic Crossroads: Trump's Tariffs and India's Place in the World

Strategic Insights

— 2 min read

Indian Prime Minister Narendra Modi's country has been a strong advocate of globalization and engagement with the West, leveraging Western technology, finance, and markets to fuel its economic growth. However, US President Donald Trump's decision to impose new tariffs on Indian imports, ostensibly as a penalty for buying Russian oil, has created a significant shock to the international trading system and a sharp reversal of good relations between the two countries. The tariffs could disrupt India's economy, but the greater risk lies in their potential to influence the country's long-term strategic direction.

Key Takeaways:

  • The new US tariffs apply to roughly $65 billion in annual merchandise exports from India, which constitutes less than 15% of the country's total merchandise exports of around $441 billion in the last fiscal year.
  • The affected goods are not insignificant, but the figure is unlikely to cripple India's export economy.
  • India's services sector, which includes IT services, financial services, business-process outsourcing, and research and development, is the true engine of the country's global economic ascent and is not subject to tariffs.
  • International markets are not static, and Trump's global tariff war will redirect trade flows and reconfigure supply chains all over the world, allowing Indian exporters to find new markets, though the transition costs are likely to be high.
  • India is well-positioned to capitalize on the shift of multinational firms' diversification of operations away from America, and Indian exporters have already begun to intensify their efforts to develop business links in OECD markets other than the US.
  • The policy uncertainty created by Trump's tariff war could accelerate multinational firms' diversification of operations away from America, further solidifying India's position in the global economy.
  • Two competing visions have long animated domestic debate on India's place in the world: one presenting the country as outward-looking and confident, pursuing growth by embracing globalization and leveraging Western technology, finance, and markets, while the other portrays international engagement as a source of vulnerability.

Statistics:

  • $65 billion: the value of Indian merchandise exports subject to US tariffs.
  • 15%: the proportion of India's total merchandise exports that are affected by the new US tariffs.
  • $441 billion: India's total merchandise exports in the last fiscal year.
  • $380 billion: India's annual services exports.
  • 1991-2011: the period during which India's economic success was fuelled by its closer ties with the West.
  • 2022: the year in which Ajay Shah and Vijay Kelkar co-authored "In Service of the Republic: The Art and Science of Economic Policy".

Sources:

  • Project Syndicate: "India's Strategic Crossroads: Trump's Tariffs and India's Place in the World" by Ajay Shah.
  • XKDR Forum: a non-profit research organization in Mumbai co-founded by Ajay Shah.
  • Penguin Allen Lane: publisher of "In Service of the Republic: The Art and Science of Economic Policy" by Ajay Shah and Vijay Kelkar.
  • Contify.com: a platform that distributes news and articles from various sources, including Kashmir Observer LLP.

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