Trump’s tariff plan poses risks for India-US bilateral trade: Goldman Sachs

While India’s trade surplus with the US doubled over the last decade to $35 billion in FY24 (or about 1% of GDP), driven by electronics, pharmaceuticals, and textiles, US President Donald Trump’s proposed reciprocal tariff plan could pose new challenges for Indian exports, Goldman Sachs Economics Research said in a report on Wednesday.

Under President Trump’s reciprocal tariff plan, India could face three potential impacts: a simple across-the-board tariff increase of about 6.5pp (percentage points) on all US imports from India, a more complex product-specific tariff match potentially raising the differential to about 11.5pp, or the most complicated scenario involving non-tariff barriers, which could result in even higher tariffs, it said.

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The report India: Dealing with Potential “Reciprocal Tariffs” from the US estimates a 0.1-0.3pp GDP impact based on varying US tariff hikes and demand elasticity for Indian exports.

Potential challenges

"However, in case of global tariffs on all countries from the US, India’s domestic activity exposure to US final demand would be roughly twice as high (about 4.0% of GDP) given exposure to the US via exports to other countries, and would likely result in a potential domestic GDP growth impact of 0.1-0.6pp," it added.

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India and other countries face potential trade challenges as Trump considers reciprocal tariffs, which threaten key sectors of the economy.

Trump’s proposed import taxes will likely be tailored to each country to counter their tariffs and trade barriers, including unfair subsidies, strict regulations, value-added taxes, exchange rate policies, and weak intellectual property protections.

For key aspects

Goldman Sachs Economics Research said reports on Trump’s meeting with Prime Minister Narendra Modi highlight four key aspects of the evolving US-India relationship.

These include a planned trade deal aiming to boost bilateral trade to $500 billion by 2030 from $120 billion in 2024, the deportation of over 220 unauthorized Indian immigrants in February, India’s growing defence imports from the US—now at $20 billion, making the US its third-largest arms supplier—and a trade agreement for increased US energy exports to India.

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"Our estimates only include the direct impact of an increase in US average effective tariff rates on Indian imports (lower exports from India to the US)," the report said.

It added that additional tariff impacts include real income effects if India retaliates with higher tariffs and reduced business investment due to trade policy uncertainty.