As global trade policies shift under new leadership in the United States, India finds itself navigating complex trade dynamics. A recent report by the Research and Information System (RIS) for Developing Countries has suggested that India prepare for possible retaliatory measures in response to any U.S. actions that might negatively impact bilateral trade. This recommendation comes amidst speculation that the U.S. may target countries with significant trade surpluses, including India, as part of its revised economic agenda.

Background: India’s Position in Bilateral Trade

India and the U.S. share a robust trade relationship, with bilateral trade reaching $117.8 billion in 2023. India exported $75.8 billion worth of goods to the U.S., while imports stood at $42 billion, resulting in a trade surplus of $33.8 billion in India’s favor. This surplus places India among the top contributors to the U.S. trade deficit, making it a potential focus of American trade policy adjustments.

The U.S. has, in the past, expressed concerns about high import tariffs imposed by countries like India. As part of a broader strategy to address trade imbalances, the U.S. is considering imposing reciprocal tariffs. If implemented, such measures could disrupt the existing trade ecosystem, necessitating a calibrated response from India.

Key Recommendations by RIS

RIS, a prominent think tank, has emphasized the importance of preparedness and strategic planning to counter potential trade disruptions. The following measures have been suggested:

1. Retaliatory Tariffs

Abhijit Das, an expert on World Trade Organization (WTO) regulations, advises that India consider imposing retaliatory tariffs if the U.S. initiates measures that contravene WTO norms. Such actions would send a strong signal, reinforcing India’s position as a nation that upholds fair trade practices.

2. Diversifying Export Sectors

India could benefit from expanding its presence in sectors where U.S. tariffs are relatively low, such as high-technology products. Over the past five years, India’s exports in high-tech categories have grown significantly, from $6.6 billion in 2017 to $18 billion in 2023. This sector represents an opportunity for India to deepen its engagement in U.S. markets.

3. Adapting the Services Sector

India is a global leader in services exports, with a significant portion of H1-B visas granted to Indian nationals working in technology and related fields. To mitigate risks, RIS suggests exploring emerging service sectors, including professional services and maintenance, repair, and overhaul (MRO) operations. This approach would reduce dependency on traditional service categories and enhance India’s competitiveness.

4. Strengthening Institutional Mechanisms

Sachin Chaturvedi, Director General of RIS, advocates for the creation of a task force to ensure policy coherence across trade, investment, technology, and finance sectors. A collaborative effort between the government and the private sector would help India respond effectively to evolving trade scenarios.

Sectoral Opportunities and Challenges

India’s mineral fuels and iron and steel exports have been identified as key areas where retaliatory tariffs could be applied. These sectors contribute significantly to India’s trade volume and offer leverage in negotiations. However, experts caution that any retaliatory measures must be carefully calibrated to avoid escalation into a full-blown trade war.

High-technology trade also offers a promising avenue for growth. By leveraging its strengths in innovation and skilled labor, India can position itself as a reliable partner in the global tech supply chain, mitigating potential disruptions caused by U.S. tariff policies.

Legal Framework and WTO Compliance

India’s response must align with WTO regulations to maintain its credibility as a proponent of free and fair trade. Any retaliatory tariffs should be backed by strong legal arguments to withstand scrutiny at the multilateral level.

Conclusion: A Balanced Approach

As the global trade landscape undergoes significant transformations, India’s ability to navigate these changes will be critical to its economic resilience. The recommendations by RIS highlight the need for a balanced approach that combines strategic retaliation with proactive sectoral engagement.

By diversifying its export portfolio, adapting its services sector, and leveraging institutional mechanisms, India can safeguard its economic interests while maintaining constructive engagement with the U.S. The road ahead may be challenging, but with careful planning and strategic foresight, India is well-positioned to emerge stronger from any potential trade tensions.

India’s policymakers must remain vigilant, ensuring that any response to U.S. trade actions is measured, effective, and conducive to long-term economic growth.