On January 20, 2025, President Donald Trump announced a reinvigorated “America First” trade policy aimed at bolstering US economic and national security interests. The key but not exhaustive components of this policy include implementation of universal baseline tariffs on most imported goods to protect domestic industries. Tariffs are expected to increase incrementally for countries engaging in unfair trade practices, such as currency manipulation or subsidies. For addressing trade deficits, US gave directions to investigate the causes of persistent trade deficits and recommend measures, such as supplemental tariffs, to mitigate them. To revoke China’s Most Favored Nation status, a four-year plan to phase out imports of essential goods from China, including electronics, steel, and pharmaceuticals, is aimed to eliminate US dependence on Chinese products.
Taking the trade policy forward and invoking the International Emergency Economic Powers Act (IEEPA), President Trump announced on 1st February 2025 that US has implemented 25% Tariff on Imports from Mexico and Canada (10% on Canadian Energy), and a 10% additional Tariff on China. The same day retaliations surfaced with countries prepared with their action plans. Canada announced retaliation on 25% tariffs on US $ 155 billion worth of US goods. China is expected to use broad range of economic weapons against US that includes filing WTO complaint, retaliatory tariffs on US coal and liquified natural gas (15%), oil and agricultural equipment (10%) and antitrust probe in google. As per latest announcements, US plans to impose tariffs on Canada and Mexico starting 4th March 2025, in addition to doubling the 10% universal tariff charged on imports from China. As expected, US trade frictions with major economies are intensifying and trade analytics with the execution by the governments is the need of the hour.
With the current US regime focused on reducing US trade deficit with its trading partners through tariffs, it is important to highlight how US China trade, despite thriving, has witnessed reduction in US dependence on China since 2018.
According to US Census data, during the period 2018 till 2024, there is a general increase in US exports to China from 2018 to 2022, followed by a slight decrease in 2023 and 2024. Imports from China show a decline over the years, with a significant drop from 2018 to 2019, followed by some fluctuation, but overall decreasing until 2024. US China bilateral trade deficit (exports minus imports) is consistently negative, but there’s a noticeable decrease in its magnitude over time. From 2018 to 2022, US exports to China increased significantly (from US $ 120.3 billion to US $ 154.1 billion). The decline in exports in 2023 and 2024 (down to US $ 131.0 billion) is influenced by changes in trade policy, China’ economic slowdown, or shifts in global demand. US trade policy as reshaping global supply chains was evidenced by World Bank Policy Research Paper in 2023 which demonstrated how cracks in US China trade have been affected post Trump tariffs 2018 onwards. US had levied tariffs on more than 60% of Chinese imports in 2018 and 2019, primarily at the 25% level. US imports of tariffed goods from China decreased by 14% in 2022 compared to 2017, whereas imports of the same goods from the rest of the world increased by 48%.
US is also framing new rules to prevent US companies from investing in China and to stop Chinese entities from acquiring American companies, unless such investments serve American interests. As per Congressional Research Service(CRS) update dated 09 December 2024, in 2023, the US foreign direct investment (FDI) stock in China was US $126.9 billion and China’s FDI stock in the US was US $28 billion. The Trade Policy document dated 20 January 2025 also highlights the Federal Contract Restrictions with a ban on federal contracts for companies that outsource production to China. This policy framework reflects a continuation and intensification of President Trump’s earlier trade strategies, the USTR is tasked with identifying countries that are suitable for new trade negotiations on a bilateral basis (one-on-one agreements) or within specific sectors.
The renewed efforts of the US on fostering bilateral trade strategy is promising for India and US. As per the statement from the White House, US has asked for “procurement of American-made security equipment and moving toward a fair bilateral trading relationship”. India-US trade balance has moved in favour of India with trade surplus growing from US $ 18.9 billion in 2018 to US $ 33.7 billion in 2023.
Trade deficits, as often argued, are not necessarily bad and also indicate how a country’s consumers and businesses are financially strong enough to afford imported goods and services. Trade balances also need to be viewed as part of the broader economic balance. A deficit in goods can be offset by a surplus in capital flows, substantiating the importance of foreign investments. Therefore, trade strategy of any economy must be calibrated in a manner that it optimally factors in both trade and investments in line with each country’s economic interests.
Trade analytics on top 100 imports of the US from the world at 6HS and overlap with India’s major exports to the globe when seen through India as the import source for US demonstrates the existing export strength of India for that specific commodity to meet US’s market requirements. Similarly, India’s top 100 imports from the world overlapping with US major exports to the globe with US as the import source for India highlights the existing US export potential to Indian market. The quick analytical scenarios reveal the existing potentials for countries necessitating only a slight nudge for the already traded commodities to enter respective markets.
Out of US’s top 100 imports at 6HS and India’s exports of these commodities to the world at the cut off of say more than US $ 10 billion in 2023 suggest India’s export potential to US mainly in Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic purposes (HS Code 300490), Smartphones for wireless networks (HS Code 851713), Medium oils and preparations, of petroleum or bituminous minerals, not containing biodiesel (HS Code 271019), Light oils and preparations, of petroleum or bituminous minerals which >= 90% by volume (HS Code 271012), Diamonds, worked, but not mounted or set (excl. industrial diamonds) (HS Code 710239) and Articles of jewellery and parts thereof, of precious metal other than silver, plated or clad with precious metal (HS Code 711319). Of these, India has scope to export more of Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic purposes (HS Code 300490) and Smartphones for wireless networks (HS Code 851713) to the US. In case of medicaments consisting of mixed or unmixed products for therapeutic or prophylactic purposes, India lists in major suppliers for the US market along with China and Canada. India can gain the market lost by China and Mexico post tariffs imposition by the US. In case of Smartphones for wireless networks (HS Code 851713), US imports from China stood at US $ 45 billion while imports from India at US $ 5 billion at a significant gap of US $ 40 billion. India at rank 3rd in US import sources for smartphones can easily fill in the gap with the market lost by China with the imposition of tariffs.
From the perspective of increasing US exports to India, for 2023, analytical scenario of India’s top 100 items of imports from the world and US exports of these commodities to the globe establish a strong base for stepping up US imports into India where US does not figure as the major supplier to India. Few of such commodities include Petroleum oils and oils obtained from bituminous minerals, crude (HS Code 270900), Gold, incl. gold plated with platinum, unwrought, for non-monetary purposes (excl. gold in powder form) (HS Code 710812), Electronic integrated circuits as processors and controllers, whether or not combined with memories, converters, logic circuits, amplifiers, clock and timing circuits or other circuits (HS Code 854231), Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus (HS Code 851762) and Electronic integrated circuits (excl. such as processors, controllers, memories and amplifiers)(HS Code 854239) among others. For electronic segments, China is the major importer for India while US, despite exporting to the world, lists way below. In case of Petroleum oils and oils obtained from bituminous minerals, crude (HS Code 270900), out of India’s total import, Russia is the top import source with share of 35% and US ranks as fifth importer with share of 4%.
With such scenarios of opportunities to benefit from trade diversion trends, countries need to navigate through tough geopolitical layers and balancing out in such a way that each country’s interests are prioritised. The way US terms “America First” in its trade policy, similarly all its trading partners must put their country’s national economic interests first.
India’s Union Budget 2025-2026 offers immense opportunities for India’s trading partners, including the US, in sync with India’s Make in India efforts. With sectoral focus on clean technology manufacturing, footwear and leather sectors, textiles, electronics, etc the Budget 2025-26 has provided due attention to critical minerals, shipping and telecom. Amidst the intensifying trade wars by western economies, significant duty reductions across industries to promote exports, lower costs, and support innovation in high-priority sectors are evident in the new budget. These measures are expected to correct inverted duty structures and facilitate more imports from India’s trading partners to enable India’s greater participation through increased global exports in strategic sectors.
For example, in the Chemicals category, the duty on compounds with pyrimidine or piperazine rings is reduced from 10% to 7.5%, synthetic flavouring essences from 100% to 20%, and sorbitol from 30% to 20%. In the Precious Metals sector, the duty on platinum findings was lowered from 25% to 6.4%. For IT and Electronics, the duty on carrier-grade Ethernet switches was reduced from 20% to 10%, and for interactive flat panel display modules, it dropped from 10-15% to 5%. In the Motorcycles category, the duty on engines with a capacity of up to 1600 CC (CBU) was reduced from 50% to 40%, while for engines above 1600 CC (CBU), it was reduced from 50% to 30%. The list of items where tariffs have been reduced to zero includes several key categories, including waste and scrap of antimony, beryllium, bismuth, cobalt, cadmium, molybdenum, rhenium, tantalum, tin, tungsten, zirconium, and copper; lithium-ion batteries, lead, zinc, and cobalt powder, extension of tariff exemptions to 36 medicines as addition to List 4, along with bulk drugs required for their manufacture. Furthermore, 37 medicines and 13 Patient Assistance Programs are now eligible for duty-free imports by pharmaceutical companies. In the Textile, Handicraft, and Leather Sector, duty-free imports now include wet blue leather and shuttle-less looms, such as rapier and air jet looms. Additional items have also been added for duty-free import by bonafide exporters engaged in manufacturing handicrafts. For the Capital Goods, zero tariffs are applicable on 35 capital goods or machinery items used in the manufacture of lithium-ion batteries for electric vehicles (EVs) and 28 capital goods or machinery items for lithium-ion battery production for mobile phones. In the IT and Electronics sector, duty-free status is now granted to inputs and parts used in manufacturing mobile phones, including printed circuit board assembly (PCBAs), camera modules, connectors, fingerprint readers, and USB cables. These measures shall encourage more imports from the US as identified from the above analytics. In the Space sector, tariffs are reduced to zero for ground installations for satellites, including spares and consumables, as well as goods used in the building of launch vehicles and satellite launching activities.
The present trade dynamics will further lead to reshuffling of the global economic order. As the US, China, Canada, Mexico, EU etc each turn to alternative trading partners and explore domestic supply chain solutions, countries such as India that are not directly involved in the trade conflict may benefit from increased market share along with experiencing new challenges in accessing certain goods and technologies. Trade diversions will entail costs and benefits for global players. The full impact, among other factors, will depend on how long the tariffs remain in place and how economies like India leverage the opportunities offered by its support policies evidenced by the Indian Budget 2025-26.
