India’s opportunity in Trump’s tariffs

For some time now, aggregate tariff rates in India have been rising. Also, it is believed by many that tariff increases have provided Indian manufacturing firms the protected space needed to grow and achieve scale economies.

But overall, the data is quite clear: The protection approach has not yielded any great benefits on manufacturing competitiveness in the aggregate. There may be an example here or there, but the Indian industry’s share of global exports has stagnated, and even fallen, in recent years. Moreover, high import tariffs have also prevented Indian industry from plugging into the global value chains that dominate international trade today.

And, therefore, it is critical that India use Mr Trump’s tariffs to its advantage reduce its own tariff rates. This will bring in many gains for Indian industry and the economy. If other countries are going to impose retaliatory tariffs on the US or not reduce their own tariffs at the very least, a significant space will open up for India to capture new export markets.

India will need to find other avenues other than tariffs to support its industry. India’s industrial policy must now follow a new mantra: Support, not Protect. Rather than protecting industry by using tariffs and non-tariff barriers, it needs to find ways of supporting industry through other mechanisms.

There are undoubtedly many synergies between the two economies: The US, with its capital-intensive economic framework, and India, with its low-cost workforce; the US, with its dominance in cutting-edge technologies, and India, with its globally respected educated workforce; the US, with its strong startup support ecosystem, and India, with its dynamic startup landscape. The two economies have significant complementarities. Given the prospects of a US-India Free Trade Agreement, India can convert this into a great economic opportunity.

India’s actions should be an assertive strategy for an economy aspiring to achieve Viksit@2047.

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