Lower import tariffs to diversify IT exports: 6 steps to navigate Trump 2.0

India must avoid being caught off guard on trade, tariffs, outsourcing, and data policies, and engage with the US as an equal partner

India and the US share a high-stakes strategic and trade partnership. The US is India’s largest trading partner, with trade exceeding $190 billion, and is home to the largest user base for American tech giants like Google, Facebook, and Amazon.

 

How should India prepare to benefit under the Trump-led trade era? Here are six actions India can take.

 

Lower import tariffs: From Donald Trump’s perspective, India has high tariffs, and he has repeatedly labelled the country the “tariff king” over the past five years, citing examples like the 100 per cent tariff on Harley-Davidson motorcycles and 150 per cent on American whiskey. Mr Trump’s emphasis on “reciprocal tariffs” could pressure India into considering tariff reforms, even though India’s rates are within World Trade Organization (WTO) norms. India’s average tariff of 17 per cent is indeed higher than the US’ 3.3 per cent, but comparable to countries like South Korea (13.4 per cent) and China (7.5 per cent).

 

While Mr Trump’s claims may be overstated, India could still benefit from a strategic tariff review that aligns with national priorities, such as supporting low-cost, value-added manufacturing and trade. With minor adjustments, India could lower its average tariff to around 10 per cent without impacting revenue significantly. This is possible as 85 per cent of tariff revenue comes from less than 10 per cent of tariff lines, while 60 per cent of tariff lines contribute under 3 per cent to revenue. A thoughtful reduction could simplify India’s tariff structure — reducing slabs from over 40 to 5, capping the highest tariffs at 50 per cent, and ensuring most input materials are taxed less than finished goods. An inter-ministerial review to refine tariffs could help avoid international scrutiny while fostering a tariff policy that supports India’s economic objectives.

 

Diversify IT exports: Mr Trump’s criticism of outsourcing and his stricter policies on H-1B visas raise challenges for India’s information technology (IT) sector, which relies on the US for 80 per cent of its export revenue. Potential restrictions on outsourcing could affect earnings for Indian IT firms and make it harder to hire skilled talent. Additionally, Mr Trump’s strict immigration stance may complicate visa processes, increasing costs and operational hurdles for Indian companies and limiting the movement of skilled professionals on short-term US assignments.

 

To mitigate these risks, India’s IT sector should diversify beyond the US, expanding operations into other markets and focusing on higher-value services like digital transformation and artificial intelligence (AI) integration for global industries.

 

Strengthen data policies: India is a large digital data generator. Data being the raw material for the new AI-driven economy, American tech companies favour the free flow of data across borders. Mr Trump may pressure India to adopt more open data-sharing policies. At the WTO, the US could push India to join the Joint Statement Initiative on e-commerce, aligning with its vision of unrestricted data movement.

 

India should resist external pressure to share data freely. Nvidia CEO Jensen Huang emphasises India’s potential to transform from an IT outsourcing hub into an AI innovation ecosystem, leveraging its vast data and computing expertise. He says, “There is no reason to let anyone else harvest that.”

 

China considers data a factor of production, like land, labour, and capital, and does not share it with global firms.

 

No to trade pillar of IPEF: While Mr Trump’s stance on tariffs is unlikely to soften, he may urge India to join the “Trade Pillar” of the Indo-Pacific Economic Framework (IPEF) as it does not involve tariff cuts.

 

In this 14-nation deal, India has committed to three of the four areas. India has wisely opted out of the IPEF Trade Pillar as it restricts domestic policies around digital trade and labour standards without offering tariff-cut benefits. India should not change its stand.

 

Strengthen Make in India: Mr Trump is expected to boost US manufacturing subsidies through initiatives like the Inflation Reduction Act, sidestepping WTO rules. India can take this as a cue to strengthen its Make in India programme, focusing on deeper manufacturing rather than surface-level assembly. India and the US can collaborate to produce solar cells from the raw material stage. This will cut dependence on China and benefit both.

 

Respond in equal measure: India must engage with the US as an equal partner, asserting its interests objectively, and responding with measured reciprocity in all dealings — something it has successfully done before. For instance, in March 2018, when the US imposed tariffs on Indian steel and aluminium, India countered by raising tariffs on 29 specific American products. This response was carefully calibrated to ensure that India collected equivalent revenue from US imports as the US did from Indian steel and aluminium.

 

India should prepare in advance to benefit from the new Trump era and avoid being caught off guard.

 

The author is founder, Global Trade Research Initiative