Calculate, Calibrate: Trump’s tariff threats need strategic response

The imposition of reciprocal tariffs by the United States is both an economic and political agenda. With President Donald Trump prioritising American jobs and trade balance, negotiations with India have taken on a strategic dimension. The US seeks lower Indian tariffs on agricultural products, premium wines, whiskies, and high-end motorcycles, alongside increased defence purchases. India aims to secure favourable trade terms while pushing for a $500 billion bilateral trade target by 2030. As Union Commerce Minister Piyush Goyal concludes his US visit, India is negotiating a trade package before the new tariffs take effect on April 2.

India must balance accommodating US demands while ensuring reciprocal benefits. One potential area of flexibility is agricultural imports. The US wants lower tariffs on almonds and apples, which India already imports in large quantities ($650 million and $150 million, respectively). A calibrated reduction could serve as a goodwill gesture without significantly impacting Indian farmers. Similarly, easing tariffs on high-end American wines, whiskies, and motorcycles - limited to a niche market - could be a strategic move with minimal economic repercussions.

However, India must secure gains in return. It can push for relaxed visa regulations for Indian IT professionals, a critical issue for the $150 billion IT services sector. With over 60% of revenue for Indian IT firms like TCS, Infosys, and Wipro coming from the US, worker mobility is essential for sustaining growth.

A key US priority is expanding defence exports to India, particularly in fighter jets, drones, and advanced military systems. India already imports US defence equipment worth $3.7 billion, and further purchases could be leveraged in negotiations. India should insist on technology transfer agreements and domestic manufacturing collaborations under ‘Make in India’ to boost self-reliance.

Beyond defence, nuclear energy is emerging as a pivotal factor in US-India trade relations. India’s interest in acquiring nuclear reactors presents Washington with an opportunity, but France and Russia provide alternatives. The US must tread carefully, offering competitive terms while reinforcing broader trade commitments.

Technology partnerships, particularly in semiconductor manufacturing and AI, are central to US-India relations. The US aims to reduce reliance on China, and India can position itself as an alternative. Trade discussions should include deeper collaboration in chip manufacturing, digital trade, and AI industries.

While cooperation is essential, India holds considerable bargaining power. Targeted retaliatory tariffs on US luxury goods could send a strong message without significantly impacting Indian consumers. Additionally, restrictions on India’s growing e-commerce market - where Amazon and Walmart operate - could increase pressure on Washington.

Agricultural exports also provide leverage. The US exports soybeans worth $1.5 billion and dairy products worth $300 million to India. Given American farmers’ political influence, any restrictions on these imports could create domestic pressure in the US, particularly in key electoral states.

India must look beyond immediate tariff concerns and work toward structured trade agreements. A limited trade deal addressing tariffs, IT services, and agricultural market access could provide stability. A full-fledged Free Trade Agreement (FTA), though complex, remains a long-term goal requiring extensive negotiations.

At the same time, India must adopt a pragmatic approach, recognising that not every deal needs to maximise financial gains. A “give and take” strategy—where both nations make strategic concessions—can build trust and economic cooperation. A purely transactional approach may not serve India’s broader interests, particularly when deeper economic integration with the US could yield greater benefits over time.

India should also continue diversifying trade relationships. Strengthening ties with the European Union, BRICS, and RCEP will reduce over-dependence on the US. A US-India agreement could also push the EU to finalise a long-pending trade deal with India.

India’s response to US reciprocal tariffs must blend strategic concessions, assertive negotiation and long-term economic planning. By selectively cooperating in high-value sectors while leveraging its bargaining power, India can mitigate risks and sustain trade growth. Economic diplomacy must trump over local pressures from political parties and interest groups.