Cautious optimism: A lowdown on India’s economic relations with Trump’s second-term US

Presently, the key areas of trade between the US and India cover some of the most critical sectors for both countries. From New Delhi’s perspective, precious metals, electronic parts and pharmaceuticals are three of India’s largest exports to the US. 

As India and the US prepare a ‘mini’ trade deal midway through 2025, we look at what the trading relationship looks like between two of the world’s largest economies.

Post-tariff regime: What’s changed for US-India trade in 2025?

In short, not much, given the general uncertainty about the tariff regime itself. It is unclear if the proposed 27 percent rate gets implemented, or a reduced 20 percent rate due to recent negotiations in June and July – or if at all, given the US Court of International Trade’s June ruling regarding the proposed tariffs being unlawful to begin with. 

Regardless, India has made notable attempts to curry favour with the US administration ever since Trump took office in January. Import taxes in India on bourbon whiskey, fish feed, satellite parts and mobile phone components from the US have been either reduced or removed altogether. Local news outlets in India heavily reported the removal of import duties on motorcycles with an engine capacity of more than 750cc, which analysts suggested is targeted at US-made Harley Davidson motorcycles, which fit the criteria. In May 2025, US-based internet and telecommunications company Starlink, affiliated with former US administration aide Elon Musk, obtained a letter of intent (LoI) from India’s Department of Telecommunications, clearing the way for Starlink to apply for a licence to operate in the world’s second-largest telecom market. The July mini-deal is supposed to focus more on trade of agricultural and dairy products.

Critically, India faces less stringent tariffs compared to other key regional economies. Vietnamese exports in the US may be subject to 46 percent tariffs, while Taiwan could also face a prospective 32 percent tariff programme; Indian analysts have argued that this can be shaped into potential for the Indian technology parts manufacturing industry, which the Indian government remains reportedly keen on. The garment industry has also looked at the proposed tariff regime as a potential boon, given the 37 percent tariff potentially imposed on goods from Bangladesh, a country reliant on garment exports. 

Secondly, India has positioned itself as an anti-China bulwark. As a result, New Delhi has, in recent years, sought to extensively scale up the country’s supply chain and manufacturing capabilities. A notable project to that end is the Gati Shakti Multi-Modal Terminals project, designed to streamline movements of goods across the country by establishing multi-modal sectoral logistics hubs. While criticised, the core facets of the Make in India programme – a comprehensive production-linked incentives (PLI) scheme – also lays out an ecosystem to enable a greater manufacturing-oriented push. One of the biggest beneficiaries of this has been Foxconn, manufacturers of Apple’s iPhone range, who have established manufacturing plants in Tamil Nadu, Karnataka and Telangana, in Southern India.  

Lastly, India’s relative optimism in the face of the US tariff regime also boils down to a strong domestic market, which ensures that consumption remains high. In her 2025 budget address to Parliament, finance minister Nirmala Sitharaman announced a rearrangement of India’s tax brackets, in order to lessen the tax burden on the country’s growing middle class. The increase of non-taxed income, from INR 3 lakh to INR 4 lakh (USD 3500 to USD 4500), announced by Sitharaman in March 2025, is the central government’s attempt to encourage more consumption, thereby strengthening India’s domestic economy, in relative slowdown following the Covid-19 pandemic.

Challenges, however, remain

Two key challenges emerge for India in this global trade climate. Firstly, question marks remain around the efficacy of PLI schemes more broadly in India. As suggested, PLI schemes in India have been subject to question marks. Raghuram Rajan, a former governor of the Reserve Bank of India, India’s central bank, has consistently maintained that companies can exploit the loose terms of the scheme. In particular, criticism has been aimed at the manner in which companies manufacture elsewhere, then assemble the final product in India, and still qualify for manufacturing subsidies in India. A trade analyst we spoke to also echoed this sentiment.

Secondly, India will have to navigate the invariable impact that the tariffs will have, strength of the economy notwithstanding – particularly in sectors like gems and jewellery, a sector which has already witnessed a slowdown in light of sanctions imposed on Russian mining companies in 2024 by the G7 and the EU. For context, India sourced 70 percent of its rough diamonds from Russia, and 14 out of 15 diamonds in the world are cut or polished in India. As per the original April announcement, the general 27 percent tariffs would apply to the sector, which would be damaging given the criticality and size of the US market to the industry: according to estimates published by EY, India exports gems and jewellery worth USD 11.5 billion to the US annually.

In conclusion, New Delhi has historically been suspicious of trade openness, with its legacy of protecting local businesses via import substitution policies, and leveraging the size of its market. In this post-Trumpian trade ecosystem, it has signalled more openness. That is not to say it has gone down well universally in India: the trade analyst we spoke to highlighted how the tariff regime being waved around by Washington DC was effectively a ‘bargaining tactic’, whose permanence and legality is not guaranteed. On the other hand, an FTA, reportedly slated for later in 2025, which is signed in anticipation of, or in response to, such disruption will outline trade terms that are concrete and permanent.

Navigating the opportunities of the Indian market, along with its risks, amid this trade-related tumult warrants freshly sourced local intelligence, and carefully analysed research. At The Risk Advisory Group, we have extensive experience in doing investigations in India, across broad market intelligence as well as targeted due diligence. For more support in doing business in India, do reach out to one of our experts.