By Pradeep S Mehta and Purushendra Singh
When US President Donald Trump announced his intention to impose a 50 per cent tariff (25% plus 25% penalty) on Indian imports, it triggered predictable alarm bells in trade and business circles. Mr Trump’s transactional, “day-trader” approach to diplomacy often prioritises headlines over holistic strategy, and has a history of using tariffs as blunt instruments.
But while many view this as a looming crisis for Indian exports, it could in fact be the jolt India needs to accelerate overdue economic reforms, diversify its trade relationships, and strengthen its role in global value chains.
Strategic relationship: India and the United States share a multi-dimensional partnership. The relationship spans defence and space cooperation, technology partnerships, climate collaboration, educational exchanges, and shared geopolitical concerns in the Indo-Pacific. Initiatives like the Quad, IMEC and bilateral dialogues on critical and emerging technologies all point to the reality that Washington and New Delhi are strategic stakeholders in each other’s futures.
In other words, while tariffs might grab the headlines these days, they are not the sum total of US-India relations. Even under a Trump presidency, it is unlikely that cooperation in defence, counter-terrorism or Indo-Pacific security would suddenly be abandoned. The challenge, and the opportunity, lies in insulating the broader relationship from the volatility of trade dynamics, as Mr Trump thinks.
Adding to the debate, US trade representative Jamieson Greer recently argued in an article “Why We Remade the Global Order” that such aggressive measures are necessary to reshape trade for America’s benefit. This framing is a wild mischaracterisation. The global order is not America’s to remake unilaterally, and certainly not through punitive economic measures that disregard the mutual benefits of open, rules-based trade. Such rhetoric alienates partners, fragments supply chains, and risks accelerating the very instability it claims to prevent.
If history is any guide, steep tariffs will hurt US consumers and businesses as much, if not more, than Indian pro…ducers. Tariffs are effectively a tax on imports, raising costs for businesses and households in the US. India’s share in US. imports includes pharmaceuticals, textiles, auto parts, IT services and specialty goods, all of which have few immediate substitutes at the same quality and price. This means that the cost burden of a 50 per cent tariff will land largely on American buyers.
For India, the near-term pain may be concentrated in specific export sectors, but long-term damage is avoidable -- if we act decisively and uniformly.
Need radical, not incremental, reforms: India has been talking about integration into global value and supply chains for years. The 2025 Union Budget included discussions about deregulation, but progress since then has been slow and piecemeal. This is the moment to shift from incremental tinkering to radical reform.
We need to:
*Simplify trade procedures to make export and import processes more efficient.
*Address logistics bottlenecks by upgrading ports, warehousing and multimodal transport links.
*Deregulate deeply so that businesses, especially SMEs, can operate at global standards without drowning in paperwork.
*India becomes not just a low-cost producer but a hub of innovation and high-value manufacturing.
*Create a national compact comprising all states, political parties, civil society and trade unions to work together to achieve the goals.
By doing so, India can move its GDP growth rate from the current six per cent towards the ambitious 8.5-9 per cent range, which is necessary for becoming a developed country.
One of the biggest lessons from any trade discord is the danger of over-reliance on a single market. The US will remain a crucial partner, but India should deepen trade ties with other nations, including in Southeast Asia, Latin America and Africa. These regions present growing demand for Indian goods and services, and building these linkages now would reduce vulnerability to unilateral actions by any single country. Also, groupings such as Brics and reviving the Russia-India-China (RIC) alliance are other routes.
We must also capitalise on the ongoing reconfiguration of global supply chains. The US-China trade truce, extended by 90 days, is driven by Washington’s inevitable reliance on Beijing’s control over critical minerals -- the bedrock of EVs, semiconductors, and other advanced technologies.
The US use of unilateral, punitive measures against third countries undermines the very rules-based international order it claims to champion. Such actions erode trust, distort markets and weaken the World Trade Organisation’s authority. India, as a key voice among developing countries, should continue to push for fair, more transparent trade rules and multilateralism -- not just for its own benefit, but for the stability of the global system. And this is India’s vision of “Vasudaiva Kutumbakam” (the world is one family).
Playing the long game: President Trump’s mercurial approach to trade policy should not distract India from its long-term objectives. Engaging the US on strategic and technological fronts, while simultaneously insulating our economy from policy shocks, is the way forward. Government-to-government engagement on defence, space, health, education and climate will and should continue uninterrupted.
Rather than respond to tariffs with retaliatory measures that escalate tensions, India should focus on strengthening its competitiveness, diversifying its markets, and leveraging global partnerships. It has started taking action on this in various manners: pushing deregulation; creating a support fund of Rs 20,000 crores for affected SMEs and accelerating efforts to find new markets.
And in the bigger picture, the best thing any country can do for the world economy is to take care of its own economy and society. Strong, stable, prosperous countries make for a stronger, more resilient global economy.
For India, that means realigning and repurposing its role in global value chains, not as a passive participant, but as a proactive shaper of the future trading system. We can do it only if all parties in the country decide to come together.
Pradeep S. Mehta is the secretary-general of CUTS International, a 42-year-old leading global public policy research and advocacy group. Purushendra Singh works for CUTS International.
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