GPI Global Policy Institute

Reshaping Trade Fairly: How U.S. Tariffs Are Encouraging Balanced Growth with India

By Yashasvi Ojha

NEW DELHI – October 28, 2025 – India and the United States share one of the world’s most dynamic and multifaceted trade relationships. In the past two decades, the U.S. has consistently ranked among India’s largest trading partners, with bilateral trade crossing $200 billion in 2024 according to the U.S. International Trade Administration. The relationship is driven by complementary strengths—India’s manufacturing and services capabilities, and America’s advanced technology, capital, and market demand.

However, the partnership has not been without friction. Since 2018, the United States has introduced several tariff measures aimed at reshaping its global trade posture—focusing on fair competition, domestic job creation, and reducing dependency on certain foreign markets. India, though not the primary target, became part of this recalibration. The imposition of tariffs and the withdrawal of India’s Generalized System of Preferences (GSP) status were major inflection points that forced a rethinking of India’s export strategies and bilateral trade approach.

Historical and Policy Context

The Generalized System of Preferences (GSP) program, established in 1976, provided duty-free access for many Indian goods to the U.S. market, benefiting over 3,500 product categories including engineering goods, leather, gems, and textiles. In June 2019, the U.S. administration withdrew India’s GSP benefits, citing limited market access for American agricultural and medical products in India. This decision affected nearly $5.6 billion worth of Indian exports, making them subject to standard U.S. tariffs.

Additionally, U.S. tariffs on steel (25%) and aluminium (10%), imposed under Section 232 of the Trade Expansion Act in 2018, significantly impacted Indian metal exporters. India’s annual steel exports to the U.S.—once exceeding $700 million—saw a sharp contraction.

Although these tariffs were largely directed at China, their global implementation affected other exporters like India, Japan, and South Korea.

While President Joe Biden’s administration has sought to rebuild multilateral trade alliances and stabilize supply chains, the core emphasis on protecting American manufacturing remains. The Inflation Reduction Act (2022) and CHIPS and Science Act (2023) further underscored the U.S. ambition to secure domestic production and technology leadership—an approach that influences its tariff and trade policies with all major partners, including India.

Sectoral Impact of U.S. Tariffs on Indian Exports

1. Steel and Aluminium Industry-India’s steel and aluminium sectors were directly hit by U.S. tariffs, with exports declining by nearly 30% between 2018 and 2020. Indian producers—especially small and mid-sized firms—struggled to absorb the increased costs, while larger corporations redirected exports to Europe and Southeast Asia. However, this also motivated India to upgrade domestic metallurgical technology and diversify export destinations.

In 2024, both nations reopened dialogue on a potential “tariff suspension framework” for critical metals, tied to the U.S. goal of sourcing from trusted democratic partners rather than authoritarian economies. The U.S. has acknowledged India as a preferred partner under its “friend-shoring” strategy, reflecting a gradual shift from punitive tariffs to conditional cooperation.

2. Textiles and Apparel-The textile sector—once a major beneficiary of the GSP—experienced a significant loss of competitiveness. With GSP withdrawal, Indian exports faced tariffs ranging from 5% to 10%, while competitors like Bangladesh and Vietnam, enjoying better trade preferences, expanded their market share. Many U.S. buyers, including large retail chains, diversified sourcing away from India.

However, India’s Production-Linked Incentive (PLI) scheme for technical textiles and the U.S.-India Clean Energy and Sustainable Manufacturing Initiative have opened new possibilities for eco-friendly textile exports. India is repositioning itself from low-cost production to sustainable and high-value textile manufacturing, aligning with U.S. environmental trade standards.

3. Pharmaceuticals-India’s pharmaceutical exports to the U.S. have remained strong and largely unaffected by tariff barriers. The U.S. continues to rely on Indian companies for affordable generic drugs, which account for over 40% of American generic medicine consumption. Regulatory cooperation between the U.S. FDA and India’s Central Drugs Standard Control Organization (CDSCO) has deepened, emphasizing safety, quality, and innovation.

While tariffs on raw materials or packaging materials have occasionally raised costs, the strategic dependence of the U.S. healthcare system on Indian generics has shielded this sector from broader trade tensions.

4. Unlike traditional goods trade, digital and IT services are beyond the tariff system. India’s IT exports to the U.S.—valued at over $80 billion annually—remain a cornerstone of bilateral economic relations. Companies like Infosys, TCS, and Wipro have expanded American operations, employing thousands of U.S. workers, thus aligning with America’s domestic employment goals.

Both nations have also intensified discussions on data security, AI governance, and cross-border digital taxation, signalling that the future of trade may be increasingly digital. The U.S.-India Initiative on Critical and Emerging Technology (iCET) launched in 2023 represents a landmark cooperation framework focusing on semiconductors, quantum computing, and artificial intelligence—areas immune from conventional tariff politics.

5. In response to U.S. tariffs, India levied counter-duties on American agricultural products like almonds, walnuts, and apples. However, given the U.S. agricultural export strength and India’s growing food security demands, both sides have since moved toward reconciliation. The 2023 U.S.-India Trade and Technology Council (TTC) discussions highlighted cooperation on climate-smart agriculture and agri-tech innovation.

By 2025, the U.S. has restored partial tariff relaxations on select Indian agri-products, while India opened access for certain U.S. dairy and poultry products—signalling pragmatic compromise over protectionism.

Policy Responses and Strategic Adjustments

India’s immediate response to U.S. tariffs in 2019 was defensive, imposing reciprocal tariffs and pursuing WTO consultations. However, the post-pandemic global context transformed the narrative. The U.S. now views India as a crucial geoeconomic ally in maintaining supply-chain resilience amid rising tensions with China.

The Biden administration’s 2024 Indo-Pacific Economic Framework (IPEF) explicitly highlights India as a “trusted partner in clean energy, digital economy, and trade diversification.” Meanwhile, India’s own policies—Atmanirbhar Bharat (Self-Reliant India) and Make in India 2.0—encourage domestic production but also seek global integration with democratic economies.

Both sides have prioritized strategic realignment over tariff disputes, understanding that economic cooperation is central to broader Indo-Pacific stability.

The Strategic Dimension of Trade

U.S.–India trade is no longer confined to economic exchanges—it now embodies strategic alignment. Washington’s growing emphasis on “friend-shoring” and “trusted partnerships” aligns with India’s ambition to be seen as a responsible global supplier.

In sectors like semiconductors, critical minerals, and defence manufacturing, India is emerging as a preferred destination for U.S. investments. The U.S. CHIPS Act and India’s Semicon India Program have been synchronized to attract joint ventures, technology transfers, and skilled labour collaboration.

From the U.S. perspective, supporting India’s industrial growth strengthens a democratic counterweight to China’s economic influence. For India, maintaining strong trade ties with the U.S. ensures access to advanced technology, capital inflows, and market diversification—key elements for its ambition to become a $5 trillion economy.

Implications for Future Trade Relations

1. Transition from Tariff Disputes to Strategic Partnership

While past tariff frictions caused disruptions, they also triggered deeper reflection on the mutual dependence between the two economies. Today, both nations recognize that punitive tariffs can be transformed into negotiation levers to drive sectoral cooperation. The 2023 trade resolution that restored several tariff exemptions on Indian steel products symbolizes this new maturity.

2. Digital Trade as the New Frontier

As the world transitions toward a digital economy, U.S.-India cooperation in digital infrastructure, cybersecurity, AI, and blockchain regulation is gaining precedence. This emerging dimension could surpass the traditional goods trade in the next decade.

3. Sustainable and Green Trade Integration

The global shift toward sustainability is prompting both nations to reconfigure trade for climate compatibility. Collaborative efforts on clean energy technology, carbon credit mechanisms, and electric vehicle supply chains are expected to define the next phase of U.S.-India trade relations.

4. Balanced Negotiation and Market Access

The U.S. seeks greater access for its medical devices, agricultural goods, and e-commerce firms in India, while India advocates for restoration of GSP-like benefits and fair visa policies for skilled workers. Constructive dialogue mechanisms like the U.S.-India Trade Policy Forum (TPF) now provide institutionalized platforms to address such divergences without escalation.

Conclusion

The recent U.S. tariffs on Indian exports marked both a test and a turning point in bilateral relations. Short-term disruptions in steel, aluminium, and textiles revealed structural vulnerabilities, but resilience in pharmaceuticals, agriculture, and IT demonstrated the enduring depth of U.S.-India trade.

More importantly, these trade frictions have catalysed strategic alignment rather than division. Both nations now perceive trade not merely as an economic exchange but as a pillar of geopolitical partnership. With the U.S. consolidating its Indo-Pacific strategy and India positioning itself as a democratic manufacturing hub, the trajectory ahead is one of cooperative competitiveness—driven by innovation, sustainability, and shared democratic values.

If navigated prudently, the recalibrated trade framework will not only strengthen economic ties but also reinforce the strategic balance of the global order—where India and the United States stand shoulder to shoulder as partners of stability, growth, and technological leadership.

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Yashasvi Ojha Research Intern, Global Policy Institute

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