Source: The post India must respond to American tariff hike with strategy has been created, based on the article “Stay calm, negotiate smartly” published in “Indian Express” on 8th August 2025. India must respond to American tariff hike with strategy.
UPSC Syllabus Topic: GS Paper 2- Effect of policies and politics of developed and developing countries on India’s interests.
Context: On August 6, President Donald Trump doubled tariffs on all Indian products entering the US from 25% to 50%, affecting nearly a fifth of India’s $87 billion exports. The decision, rooted in political and strategic motives, requires a calm, well-planned Indian response to protect economic and strategic interests.
For detailed information on India must respond wisely to Trump’s trade read this article here
Understanding the Tariff Escalation
- Shift from Strategic Altruism: The US has ended special trade carve-outs for India, once justified by the hope of a long-term partnership. This signals a move towards a transactional approach.
- Political and Personal Factors: Trump is reportedly offended that India did not acknowledge the US’s possible role in the May 10 India-Pakistan ceasefire.
- Economic and Technological Disputes: US tech firms resent India’s data localisation rules, as India controls data of one-fifth of humanity, vital for modern AI.
- Energy and Geopolitics: India’s discounted Russian oil purchases are politically inconvenient for Washington, prompting punitive tariffs.
Short-Term Tactical Responses
- Targeted Exemptions: India should seek exemptions for textiles, jewellery, and electronics, joining the over $1 trillion worth of US tariff exemptions already granted. Pharmaceuticals and smartphones are exempt for now.
- Mobilising US Domestic Pressure: Engage US retailers and industries to show how tariffs raise inflation and hurt American consumers, especially before major shopping seasons.
- Retaliation with Restraint: Prepare a list of politically sensitive US exports — California almonds, Washington apples, Wisconsin motorcycles — and apply duties only if talks fail.
Negotiating Leverage
- Trade Concessions with Strategic Value: Offer tariff cuts on luxury goods and automobiles in return for benefits like increased US natural gas sales and controlled fintech access.
- Separating Trade from Security: Maintain strategic deterrence in the Indo-Pacific while using big-ticket defence deals — drones, GE-HAL fighter engines — as incentives for tariff removal.
- Domestic Support Measures: Provide temporary credit and incentives to vulnerable export sectors such as garments and pharmaceuticals.
Long-Term Strategic Adjustments
- Coalition Building: Collaborate with countries also facing US tariffs — Vietnam, Bangladesh, Brazil, EU, Japan, and even China — to form coordinated responses.
- Workarounds and Diversification: Use Mexico and Canada as transit points to bypass tariffs. Accelerate the EU trade agreement, implement the UK deal, and strengthen Gulf and Latin American ties.
- Leveraging Services Sector Strength: Expand IT and business services exports, especially Global Capability Centres, which are largely immune to tariff measures.
Transforming the Challenge into Opportunity
- Reducing Own Trade Barriers: Selectively lower India’s high tariffs to make exports more competitive.
- Accelerating Manufacturing Reforms: Push long-delayed reforms to improve competitiveness and productivity.
- Resilience over Dependence: Reduce over-reliance on the US market, using domestic demand, diaspora networks, and global partnerships to sustain growth.
Conclusion: Calm, Pragmatic Statecraft
India must negotiate firmly, build alliances, diversify markets, and boost competitiveness. Following Deng Xiaoping’s advice — “hide your strength, bide your time” — this tariff dispute can become a turning point for a resilient, confident Indian trade strategy. The US market matters, but India’s growth rests on dignity, sovereignty, and strategic autonomy.
Question for practice:
Examine how India can strategically respond to the recent US tariff hike while safeguarding its economic and strategic interests.
