A recent NITI Aayog report suggests that the heightened tariffs imposed by the United States and other major trading partners such as China, Canada, and Mexico could be an open strategic trade window for India. The tariff imposition could lead to increased trade opportunities in the automobile sector, electrical machinery, and auto components.
The report further reveals that India has the potential to become more competitive in 20 out of the top 30 product categories exported to the US. India’s rising production capacity, supported by domestic incentive schemes, could further boost overall trade with the US.
The steep import tariffs introduced by the Trump administration – 30% on Chinese goods, 35% on Canadian imports, and 25% on Mexican products – have significantly altered global trade dynamics. Such trade tariffs have further opened the gates for India to explore and attain new trade partners.
EV Supply Opportunity For India
Global automakers have been trying to diversify and change their suppliers for EV components, such as semiconductors and other electrical systems used in automotive production. India can leverage this situation to increase its grasp in the international markets for products such as semiconductors and electrical componentry. The report further puts forth the idea that swift, sector-specific measures are necessary to leverage the situation.
Trade Talks Underway
To harness the situation, a delegation from India’s commerce industry has reached Washington for a new round of talks on the proposed bilateral trade agreement. With the new round of discussions, the committee is planning to finalise an interim deal by the end of the winter, with a full agreement potentially materialising thereafter.
The US has been in pursuit of duty reductions on various industrial and agricultural goods, including automobiles. At the same time, India is planning to push for better access for its labor-intensive exports, such as textiles, gems, footwear, and auto parts. India is also seeking relief from steep US tariffs on its steel, which has been hit with a 50% tariff; aluminum, which faces a 50% tariff; and automobile exports, which are subject to a 25% tariff.
The earlier rounds of talks were held from June 26 to July 2, and they are taking place ahead of a new US deadline of August 1 for implementing additional tariffs on multiple countries, including India.
Policy Recommendation
To fully leverage the situation, NITI Aayog has asked for an expansion of the PLI schemes into labour-intensive sectors such as leather, furniture and handicrafts. Beyond that, the Aayog has recommended lowering industrial electricity tariffs by rationalising cross-subsidies and increasing the use of renewable energy, measures aimed at reducing overall production costs.
The report has also indicated the need to explore service-related trade deals with the US that will be similar to that of the India-UK model and to further work on trade provisions for digital trade in IT, finance, and professional services.
If the negotiation leads to favourable trade flows across multiple sectors—including automobiles—these will allow the exporters a vital competitive edge amid rising global protectionism.
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