Trump’s protectionist pitch may test India-US ties

Potential tariff hikes, outsourcing restrictions, and visa curbs under a new Trump administration could pose challenges for Indian businesses, yet new opportunities might arise as Delhi and Washington seek ways to counter Beijing’s influence in the Asia-Pacific, analysts said.

Trump’s second term will not be free from challenges around trade negotiations and immigration policies, Ajay Sahai, director-general and chief executive of the Federation of Indian Export Organizations (FIEO), said. “Nevertheless, the overall trajectory of India-US relations is expected to stay strong.”

The strategic partnership between both nations is also set to grow even stronger, with India and the US committed to countering Chinese influence in the Asia-Pacific, Sahai said.

Trading headwinds

Bilateral trade, which currently stands at about $190 billion, is projected to hit the $500 billion-mark by 2030.

“Trump’s victory would affect certain aspects of India-US trade and strategic relations, especially as he emphasizes reindustrialization and pursues his geopolitical goals,” Ajay Srivastava, founder of trade policy think tank Global Trade Research Initiative (GTRI), said.

“Under Trump, subsidies for US manufacturing are likely to rise, particularly through policies such as the Inflation Reduction Act, which promotes local production,” Srivastava said, adding: “This protectionist approach could increase support for US industries, potentially sidestepping WTO (World Trade Organization) rules and setting a precedent for other nations to boost domestic manufacturing.”

India’s “Make in India” initiative may also adopt this model, reinforcing local industries in a shifting global trade environment, he said.

Trump had earlier raised concerns about the US trade deficit with India, which grew from $50 billion in his first term to around $100 billion now, according to Sahai.

Sahai said this may lead to demands for greater US market access in sectors such as dairy, pharmaceuticals, and diagnostic equipment. India has addressed concerns over dairy feed practices, price control measures for medicines, and regulatory frameworks protecting domestic industries from tariff reductions on hardware imports.

GTRI’s Srivastava suggested that Trump’s policies could extend tariffs beyond China to other countries, including India.

Known for his stance on “large tariff abusers,” Trump may pursue stringent trade negotiations, potentially applying reciprocal tariffs on Indian goods.

He added that Trump could pressure India to reduce tariffs and impose higher tariffs on Indian goods in automobiles, textiles, pharmaceuticals, and wine, making Indian exports less competitive in the US market.

As the US intensifies pressure on China, Indian exporters may find opportunities to fill gaps left by restricted Chinese imports.

Immigration imbroglio

Trump’s critical view of outsourcing has raised concerns over US jobs being sent abroad, Srivastava said.

With more than 80% of Indian IT export earnings coming from the US, stricter outsourcing policies could significantly impact India’s IT sector.

Srivastava warned that Indian IT firms, which contribute to both the US and Indian economies, may face challenges if Trump imposes stricter outsourcing rules.

H-1B visas, essential for Indian professionals in the US, could also be affected.

Trump’s immigration policies may result in higher costs and operational difficulties for Indian IT companies, limiting the movement of skilled professionals and hindering talent acquisition for Indian firms in the US.

Sahai noted that while H-1B restrictions may persist, Indian immigrants are likely to maintain a fair share of visas when compared with other countries such as China.

Additionally, as US companies establish global capacity centers (GCCs), India may benefit from increased investment in its tech sector.

Srivastava said Trump may press India to support the joint statement initiative on e-commerce at the WTO and allow free data flow.

But India should resist such pressure, he said, as data is vital to the emerging AI-driven economy, similar to how China views data as a key production factor alongside land, labor, and capital.

Seeing red over going green

Trump is expected to relax labor and environmental standards. He may even exit the United Nations Framework Convention on Climate Change (UNFCCC), as he did with the Paris Agreement, citing economic disadvantages.

His advisors are reportedly preparing executive orders for a complete withdrawal, potentially weakening global climate efforts.

Trump’s reduced emphasis on climate policy contrasts with recent European Union (EU) standards, such as the Carbon Border Adjustment Mechanism (CBAM). A lighter regulatory environment in the US may mean fewer compliance requirements for Indian exporters, though it could also slow progress on global climate goals.

Ringfencing the US market

Trump’s trade policy is expected to remain protectionist, with little likelihood of tariff reductions. In his previous term, he withdrew from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), noted Srivastava.

The ongoing 14-nation Indo-Pacific Economic Framework (IPEF) aligns better with Trump’s approach, as it doesn’t require tariff cuts but emphasizes digital trade, supply chain security, and clean energy. Trump may push India to join the IPEF’s “Trade Pillar,” and India should be prepared with a counter-strategy, Srivastava added.

The Modi-Trump rapport

Trump’s administration is likely to enhance military cooperation with India.

The strong rapport between Trump and Prime Minister Narendra Modi suggests that defense ties will flourish, especially as both countries face challenges from China.

The “China Plus One” strategy may encourage US companies to relocate operations to India, benefiting its manufacturing sector.

Strategic realignment

Defense collaboration is key to the Indo-US relationship. Both countries have signed agreements on critical and emerging technologies and the GE-HAL deal to manufacture jet engines in India.

Aligned in the Asia-Pacific to counter China’s influence, Srivastava said Trump’s assertive approach may accelerate this partnership.

India is a critical strategic partner for the US, supporting access to alternative suppliers in vital sectors like minerals, semiconductors, and electronics. This dimension of the Indo-US partnership could gain urgency in Trump’s second term, Srivastava said.