In an age of reimagination and reorientation of geoeconomic order, a careful recalibration of India’s own trade policy outlook, while looking beyond the US is more pressing now than ever.
The Modi government’s response to Trump’s Tariff tantrums has been built around securing national interest and maintaining India’s self-respect, reaffirming the government’s commitment to protecting farmers while staying silent on the broader future of a trade negotiation deadlock with the Trump administration, which will be seen as a catastrophic fallout of a trade (and strategic) ally for India that underscores its strategic bind and more.
It was in 2018 when the two countries first floated the idea of a “mini-trade deal” to resolve tariff disputes, improve market access, and rebuild trust after the US removed India from the Generalized System of Preferences (GSP), a program under which nearly $6 billion worth of Indian exports once entered the US duty-free.
The underlying motivation was clear. The US sought to open Indian markets for agricultural goods and data localization reform, while India aimed to secure its pharmaceutical and IT exports and gain reprieve on steel and aluminium duties.
Over time, what was supposed to be a small corrective arrangement evolved into a larger, more complex negotiation framework. Multiple rounds of dialogue ensued between 2019 and 2023, punctuated by pandemic-induced delays and the change in administration in Washington. By 2024, it was apparent that New Delhi’s protectionist trade posture, rooted in its doctrine of Atmanirbhar Bharat, had become a non-starter for US negotiators seeking liberalisation commitments.
Economic nationalism
At the heart of the breakdown lies India’s pivot toward economic nationalism. The flagship “Make in India” campaign, launched in 2014, was meant to elevate manufacturing’s share in GDP to 25 per cent by 2025. A decade later, manufacturing still hovers well below target. World Bank-derived data now places it at just 13 per cent in 2024, marking a decline from earlier years.
Despite Production Linked Incentives (PLIs) worth ₹3 lakh crore (roughly $36 billion) across sectors such as electronics, pharmaceuticals, and automobiles, foreign direct investment (FDI) inflows into manufacturing have seen only moderate upticks, rising from $12.09 billion in 2020–21 to $19.04 billion in 2024-25, with most capital concentrated in only a handful of sectors like mobile phone assembly.
The government’s more recent narrative of “Viksit Bharat 2047”, similarly hinges on the presumption of stable and expanding global trade partnerships.
Yet these assumptions are increasingly at odds with policy choices. High tariffs, one of the highest among the G20, combined with retrograde regulations such as import licensing for laptops and servers, continue to raise red flags in Washington and Brussels alike.
Strategic misalignment
The tariff standoff with the US is thus not an isolated episode but a symptom of deeper strategic misalignment. While India seeks to climb up the value chain through import substitution, its key trade partners demand deeper integration into open global value chains.
This divergence has eroded the strategic convergence that once underpinned the Quad and Indo-Pacific Economic Framework (IPEF) frameworks, both of which were sold as platforms for countering Chinese influence while securing supply chain resilience. But India’s refusal to commit to IPEF’s trade pillar in 2022, citing data sovereignty and agriculture sensitivity, signalled its unwillingness to liberalise beyond its own tightly held interests. And as the latest developments suggest, that reluctance has now triggered formal retaliation.
Beyond trade, the geopolitical ripple effects are beginning to show. At the upcoming Shanghai Cooperation Organisation (SCO) summit in Astana, India is expected to face new pressures to clarify its strategic orientation. In response, India is attempting a more rational, level-headed pushback, leveraging institutional dialogue, appealing to multilateral forums, and seeking broader alignment through the upcoming SCO summit.
South-South cooperation
But such a calibrated approach may fall on deaf ears when dealing with a Trump administration that thrives on unilateralism and transnationalism. In this climate, rationality may be read as weakness, not strength. Brazil’s President Lula da Silva has already indicated plans to reach out to both Modi and Chinese President Xi Jinping, urging greater South-South cooperation and questioning the new Western economic assertiveness. While it remains unclear whether such outreach will lead to formal coalition-building, the direction is evident. A search for alternatives to US-led trade architecture is gaining steam.
Yet, such realignments come with their own risks. For all its differences with the US, India remains heavily dependent on American capital, technology, and consumer markets. In FY24, bilateral goods trade stood at $131.84 billion, making the US India’s largest trading partner. Indian IT firms draw nearly 60 per cent of their revenue from US clients. A sustained rupture could thus prove disastrous not only for macroeconomic stability but for the very narrative of a rising, digitally powered India.
Moreover, India’s own economic contradictions are beginning to mount. As data suggests that while GDP has surged past $4.1 trillion, job creation remains sluggish. Real wages have stagnated since 2017. A vision of “Viksit Bharat” built on weak manufacturing, volatile exports, and an inward-looking trade posture is structurally fragile, especially when external financing is tightening and oil prices remain volatile.
And while Modi’s political messaging has focused on safeguarding farmers and MSMEs, the tariff blowback is likely to hit precisely those constituencies.
In sectors like textiles, automotive components, and agricultural produce, where India had begun to consolidate niche gains in the US, new duties will erode margins and employment.
Crucially, the silence between the leaders of the world’s largest democracies speaks volumes about the fading diplomatic warmth.
Transactional friction
Unlike the Trump-Modi or Obama-Modi eras, marked by high-visibility camaraderie, the current phase is defined by transactional friction. Biden’s economic team, heavily shaped by labour and climate lobbies, views India’s industrial policies with scepticism. Simultaneously, Indian policymakers, influenced by electoral imperatives and a growing sense of strategic autonomy, see Western demands as infringing on sovereignty.
Caught in this cross-current is the Indian consumer, whose access to cheaper goods, better technology, and more competitive services may now be curtailed. For a country still grappling with inflationary pressures, protectionism may offer political optics but little economic relief.
There is still a narrow window to salvage the bilateral trade equation. Analysts suggest that backchannel talks via the USTR and India’s Ministry of Commerce may resume after the SCO summit, especially if China’s role in shaping new coalitions increases.
Confronting truths
There is also hope that a reconstituted Trade Policy Forum (TPF), long dormant, could be revived with renewed pragmatism. But for that to happen, both sides must first confront the inconvenient truths.
India must acknowledge that its manufacturing revival cannot succeed without reliable trade partnerships and regulatory predictability.
Make in India cannot become a euphemism for autarky. Likewise, the US must revisit its own inconsistencies, its rhetoric of open trade often masks protectionist instincts, especially in pharmaceuticals and green technology subsidies. Mutual recriminations will solve little.
Even if a face-saving tariff deal eventually materialises between New Delhi and Washington, the strategic trust that underpinned the relationship has been badly eroded. In trade diplomacy, deals can be negotiated, but broken trust leaves a deeper scar. As one Indian official noted privately, this rupture “will outlast the paperwork”.
The deeper lesson here is that economic diplomacy cannot be a performance between two individuals; it must be pursued through a multi stakeholder approach, anchored in values and maintained by mutual respect, a consistent policy, and a shared vision of prosperity.
As global power centres realign and the post-pandemic order remains in flux, neither India nor the US can afford the illusion that their trajectories are decoupled. Trade, after all, is not just about goods. It is about trust. And that trust right now, is in desperately short supply.
The writer is Professor of Economics, OP Jindal Global University. Ankur Singh contributed
Published on August 11, 2025
