The major concern for India is that the Trump government is dead serious on imposing reciprocal tariffs on all nations. For India, the reason it matters, is that the US is the largest export destination as of date. Most of India’s other trading partners like China, Russia, UAE, Iraq, and Saudi Arabia are adding to India’s trade deficit. The US is one of the few countries in the world that contributes to India’s surplus. Of course, that is just part of the worry. The bigger is services.  

If you look at the services exports from India in FY25, it is almost 85% of total goods exports. More importantly, it is the services trade that creates a surplus of nearly $18 billion each month. That is what has kept India’s current account deficit in check. For instance, if you look at the break-up of services exports, more than 80% is accounted for by the IT exports, and these predominantly go to the US. There are concerns that if India does not open up services to US companies, then there could be some sort of retaliation on services too. That is something India cannot afford, more so with tech spending under pressure! 

As much as punitive tariffs appear to be the easy way out for the US, it is going to be a sticky game. Canada is already reconsidering its fighter jets orders with the US, if the punitive tariffs on Canada were to continue. Mexico has put similar retaliatory tariffs on the US. The EU is soon likely to respond, but there seem to be other developments. The EU has committed $850 billion to defence, and Germany is planning to open its purse string for a big defence investment. All that is not good news as it dilutes the hold that the US has over the rest of the world. For long, the US economy and the US dollar has been the fulcrum of world trade. If that changes; it is the US dollar exuberance that will be in trouble. 

India is still an inward-looking economy and, even in a worst-case scenario, the tariff war is unlikely to substantially put pressure on India’s trade equations. The US may impel India to buy more of US crude, but that may not be such a bad thing, after all. While some impact of reciprocal tariffs is likely to hit India, the bigger concern would be steel and other metals being dumped into India. That could be the real concern, if the US starts putting punitive tariffs. It is very likely that good sense would prevail even with the Trump-Musk duo. India has to play its trade cards smartly, and not be too aggressive in its response!