Donald Trump has dropped a big hint about signing a “very big” trade deal with India. The remarks, coming ahead of his July 9 deadline for striking deals or resuming ‘reciprocal’ tariffs, offer a significant relief for markets, policy makers and industry. Tariff-related uncertainties have triggered a massive sell-off in global and domestic equity markets, with foreign portfolio investments remaining volatile. While the contours of the proposed deal are unknown, it’s likely that it would enhance economic partnership, transform bilateral trade and lower tariffs, making products competitive across sectors such as energy, agriculture, defence and aviation. It’s also possible that India would gain market share in some American sectors owing to lower tariffs; although the gains would depend on India’s comparative advantage against other countries. The anticipated direct export loss is pegged at $14 billion, amounting to 0.38 percent of India’s GDP, according to a working paper published by the National Institute of Public Finance and Policy.
The export basket might change, too. Some of India’s top 10 exports to the US—including electronic goods and gems & jewellery—may lose market share as competing countries are subject to lower tariffs on these products. On the other hand, we may gain in the footwear, apparel, electrical machinery and toy markets. For instance, according to the NIPFP paper, China, Vietnam, Indonesia, Italy and Cambodia account for 45.5 percent of the total in footwear exports to the US. Even if China is excluded, India can potentially corner a bigger share from Vietnam and Indonesia, which are subject to much higher tariffs of 46 percent and 32 percent, respectively. Similar opportunities exist in the furniture and sports equipment markets, too
At the same time, a multi-product, multi-country dumping threat looms over India. We should be watchful as China, Vietnam, Taiwan and others facing higher tariffs look to flood us with cheaper goods. While India reduces the tariff deficit with the US, it needs to offer calibrated concessions on select US goods like aerospace components. We should secure sector-specific exemptions, negotiate duty waivers for auto components and electronics, and diversify export markets away from the US, pursuing opportunities in the EU, the UK and ASEAN. Above all, India should strengthen domestic manufacturing, boost Make in India initiatives in key areas such as semiconductors, renewable energy and electronics to reduce import reliance and attract investments.