India & The New World

 

The New World -- the Indian Response­­­­

Deepak Razdan

25 March, 2025

Indian diplomacy and India’s trade expertise will be on a test from 2nd April, 2025 when President Donald Trump announces a new series of reciprocal trade tariffs in which India is likely to be included.

Some of the tariffs announced by the US Administration, like on steel and aluminium imports, have already taken effect. Since the inauguration of his second term of the US Presidency on 20th January, Mr Trump announced several changes in the US defence, trade and immigration policies.

These created widespread scare in Canada and European countries, as also in South America and Asia, although Mr Trump had never hidden from the world his America First agenda. Canada and the European countries are in a state of shock. Canada is going for federal polls on 28th April. The northern neighbour of the US had always felt comfortable with US’ friendly policies on trade and security.

The situation changed suddenly when Mr Trump announced high tariffs on Canadian products from diverse sectors and even hinted annexation of Canada by saying it could become the 51st State of the United States. Mr Trump’s announcements triggered a new sense of patriotism among Canadians and they are preparing to meet all challenges to their identity and well-being.

The European countries are also facing high trade tariffs from the US; but they are more worried about expanding their defence capabilities. They feel insecure as Mr Trump has discontinued military support for Ukraine in its conflict with Russia. Since the United Kingdom and the EU nations wholeheartedly supported Ukraine in its conflict with Russia from the beginning, they fear they could face Russian threats one day.

The US security cover they thought they could take for granted for eternity is in doubt because of Mr Trump’s remarks that the European nations had not contributed sufficiently to the NATO defence budget. Europe almost considers the US is now closer to Russia than to its old allies. Both Canada and Europe are in a state of turmoil at present. The United States is going through a churn and how and when it will settle down with its map of international friends and foes is currently a subject of study across the world.

Distant countries like China and Japan are strong economies. Among the fast emerging economies, India with its fifth largest economy in the world has to prepare itself for the fast-changing global scenario. The Trump Administration did not spare India on illegal immigration and quite a few flights of illegal Indian immigrants have been sent to India.

If India faces some trouble on trade with the US, it cannot expect much relief from Canada or Germany, France or the UK which are themselves not sure of their situation. If India goes out of its way to befriend the US, this may not go down well with Canada or Europe. Though home to lakhs of Indian immigrants, Canada is not really on the best of terms with India already because of India’s strong protests over Khalistani activity in Canada. India will have to look to new trading partners, push its Act East Policy and negotiate with ASEAN members for larger trade volumes.  

At present, India’s share in global trade (inclusive of merchandise and services exports) is only 2.7 per cent. India depends on the US for most of its international trade. Currently India is negotiating a detailed agreement with the US to increase bilateral trade from $ 200 billion to $ 500 billion annually. The first tranche of this mutually beneficial, multi-sector Bilateral Trade Agreement (BTA) is expected to be negotiated, as early as, by fall of 2025. US Trade officials are to hold talks in India.

But it is the reciprocal tariffs which are a matter of concern for India, like they are for the rest of the world. Mr Trump has declared that the US will impose reciprocal tariffs against all countries which have a history of doing so against the US. After his 24th March, 2025 Cabinet meeting he announced his government hoped to earn billions of dollars from tariffs to finance national projects.    

Among India’s major partners, India’s Trade Balance is positive only in the case of the USA. In 2020.India earned 22.2 billion dollars from its exports to the US. The next year this dividend reached 29.9 billion dollars and in 2022, it was 28.7 billion dollars. With all other major trading partners, the balance of trade was in deficit and the deficit is increasing substantially every year.

India’s trade deficit in 2022 stood at 87.5 billion US dollars with China, 21.3 billion US dollars with UAE, 33.3 billion US dollars with Saudi Arabia, 34.8 billion US dollars with Iraq, 18.6 billion US dollars with Indonesia, 31.1 billion US dollars with Russia, 12.5 billion US dollars with Singapore, 9.6 billion US dollars with Hong Kong and 13.2 billion US dollars with the Republic of Korea, as per official DGCI&S data.

Petroleum products constitute the largest exported goods from India, and stand at 21.6 per cent of India's total merchandise exports in 2022-23. This is followed by pearls and precious stones (5.6 per cent), drug formulations and biologicals (4.3 per cent), iron and steel (3.0 per cent), telecom products (2.8 per cent), gold and other precious metals (2.7 per cent), electrical equipment (2.4 per cent), products of iron and steel (2.2 per cent), organic chemicals (2.1 per cent), and readymade garments (RMG) of cotton (2.1 per cent), among others.

More than one-third of India’s total imports comprise crude petroleum, coal, coke and other petroleum products which are needed for energy security of the country.

India will have to promote many more products aggressively to stay ahead in the competitive world where nations are now talking in realpolitik language only. India must discover how Japan and Germany suffering huge losses in World War II produced goods of high quality and export value, and how different factors of production contributed to help ASEAN members to grow fast and flood the world with high quality products.

Among India’s export destinations, the USA is the largest, accounting for 17.4 per cent of India's merchandise exports in 2022-23. For other trading partners, official data showed their share stands at: UAE (7.0 per cent), Netherlands (4.8 per cent), China (3.4 per cent), Bangladesh (2.7 per cent), Singapore (2.7 per cent), the UK (2.5 per cent), Saudi Arabia (2.4 per cent), Germany (2.3 per cent), and Indonesia (2.2 per cent). In 2022-23, the share of the top 40 export destinations in India’s export market was 86.58 per cent.

Free Trade Agreements (FTAs) with other countries provide certainty of market access in key services sectors on non-discriminatory terms. An Indian Parliamentary report has just revealed that among the countries with which India has signed the FTAs or Comprehensive Economic Partnership Agreements (CEPA), many countries like Australia, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore and Vietnam export much more than what they import from India.

The Government is considering opening commercial offices in Indian missions abroad. The government interacts with the Confederation of Indian Industry (CII); the Federation of Indian Export Organizations (FIEO); the PHD Chamber of Commerce and Industry (PHDCCI); the Federation of Indian Chamber of Commerce and Industry (FICCI); and the Associated Chambers of Commerce and Industry of India (ASSOCHAM) to formulate policies and strategies.

But these organisations also need to send their own expert teams around the world to interact with trade chambers to gather latest information and to educate them about New India and its liberal policies. Their personal interactions will reveal influential people in many countries know virtually nothing about India’s changing policies or trade potential. The world is facing a crisis in international trade. Government initiatives alone will not help. Trade bodies will need to go around the world themselves and even encourage independent organisations to have informal tours to find where India can gain from international business.