Answer

The weaponization of tariffs refers to the use of trade barriers and tariffs as tools to exert economic pressure or influence. Under the Trump administration, this strategy became central to America First trade policies. These protectionist measures pose significant challenges for India’s trade policy, especially concerning tariffs, market access, and export growth.

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Challenges for India’s Trade Policy Due to the Weaponization of Tariffs and Trade Barriers

• Increased Trade Uncertainty: India’s trade negotiations with the U.S. will face unpredictability due to the America First Trade Policy, which prioritizes domestic interests over global partnerships.
  For example: During Trump’s first term, India lost its Generalised System of Preferences (GSP) status, affecting exports like textiles and handicrafts, which had previously benefited from tariff-free access to U.S. markets.
• Higher Tariffs on Key Exports: The imposition of tariffs on Indian goods could make exports less competitive in the U.S. market, reducing trade volumes and profitability for Indian businesses.
  For example: Trump’s administration imposed tariffs on Indian steel and aluminum in 2018, leading to retaliatory tariffs from India on U.S. agricultural products like apples and almonds.
• Reduced Policy Leverage in Trade Agreements: The U.S. is expected to use tariffs as a bargaining tool to extract concessions, reducing India’s ability to negotiate favorable terms in trade agreements.
• Disruptions in Energy Trade: Trump’s exit orders targeting Iran and Venezuela oil imports limit India’s energy diversification options, increasing reliance on costlier alternatives from the U.S. or Gulf nations.
  For example: In 2019, India had to stop importing oil from Iran due to U.S. sanctions, forcing it to shift to more expensive crude imports from Saudi Arabia and the U.S.
• Pressure to Align with U.S. Policies Against China: India’s strategy of benefiting from U.S.-China trade tensions may be disrupted if Trump’s administration re-engages China strategically, impacting investments and trade incentives.
  For example: Trump’s recent outreach to Xi Jinping, despite past hostilities, signals a potential shift in the U.S.-China trade war, which could impact India’s positioning in global supply chains.

Impact of Protectionist Policies on India’s Trade Interests

• Decline in Export Revenue: Increased tariffs on Indian IT services, pharmaceuticals, and textiles will reduce India’s export earnings, particularly in sectors heavily reliant on U.S. markets.
  For example: India was the largest beneficiary of the GSP program until its withdrawal in June 2019, impacting 1,945 Indian products. The tariff concessions lost amounted to over $241 million, increasing India’s trade costs.
• Threat to India’s IT-BPM Industry: The rise of AI-driven automation and restrictions on H-1B visas could shrink job opportunities for Indian tech professionals, affecting the IT sector’s foreign revenue.
  For example: Google CEO Sundar Pichai stated that 25% of new code is already AI-generated, indicating a future decline in demand for human software engineers.
• Higher Cost of U.S. Imports: The imposition of tariffs on Indian pharmaceuticals, auto parts, and engineering goods could increase the cost of essential U.S. imports, affecting domestic industries.
• Weakening of India’s Manufacturing Competitiveness: The U.S.’s withdrawal from global tax agreements and protectionist trade policies will limit investment inflows, making Indian manufacturing less competitive globally.
  For example: The freezing of USAID funding and exit from the Paris Agreement may cut U.S. investments in India’s renewable energy sector, slowing down India’s green transition.
• Strategic Shifts in Global Trade Alliances: India may have to diversify trade partnerships with Europe, Japan, and ASEAN nations to counterbalance reduced trade benefits with the U.S.
  For example: India’s recent efforts to negotiate free trade agreements (FTAs) with the UK and EU highlight its attempt to mitigate losses from U.S. trade disruptions.

Measures to Safeguard India’s Economic Engagement with the U.S.

• Strengthening Bilateral Trade Agreements: India should negotiate a comprehensive trade deal with the U.S. to secure preferential tariffs, ensure market access, and reduce trade-related uncertainties.
  For example: A potential India-U.S. mini trade deal was discussed in 2020, focusing on restoring GSP benefits and lowering tariffs on key exports like pharmaceuticals and textiles.
• Diversifying Export Markets: India must reduce over-dependence on the U.S. by expanding its trade partnerships with Europe, Japan, ASEAN, and Africa to minimize the impact of U.S. trade restrictions.
• Enhancing Domestic Manufacturing & Self-Reliance: By promoting initiatives like Make in India and PLI schemes, India can reduce reliance on U.S. imports and strengthen its domestic industrial base.
  For example: The Production-Linked Incentive (PLI) scheme for electronics and pharmaceuticals has already attracted global players like Apple and Samsung to manufacture in India.
• Strategic Engagement on AI & Technology: India should collaborate with U.S. tech firms in AI, semiconductor manufacturing, and emerging technologies while ensuring that its skilled workforce remains relevant.
  For example: India-U.S. discussions on semiconductor manufacturing, such as the Micron Technology investment in Gujarat, indicate efforts to deepen tech cooperation.
• Negotiating Favorable Visa & Immigration Policies: India must push for fairer H-1B visa policies and work with U.S. policymakers to protect the interests of Indian professionals and businesses.
  For example: During Trump’s first term, India engaged in diplomatic talks to ease H-1B restrictions, benefiting thousands of Indian IT professionals.

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To safeguard its economic engagement with the U.S., India must adopt a diversified trade strategy, focusing on multilateral trade agreements, strengthening domestic industries, and investing in innovation. Additionally, strategic diplomacy and proactive trade negotiations will help mitigate the effects of protectionist policies while maintaining robust trade relations.

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