Can India Seal a Trade Deal With US Before Trump’s April 2 Tariff Deadline?

Trump Tariffs: Trade tensions have already sent jitters across global markets. With the April 2 deadline now just a few days away, investor skepticism continues, especially as India witnessed a subdued growth outlook in Q3.

India is among the more exposed economies to tariff escalations, in the Asia region. This is largely due to high tariff levels imposed by India on certain imports alongside already-present non-tariff barriers. Plus, its trade surplus with the US further increases the risk of reciprocal tariffs.

While there is a lot of uncertainty around the extent of these tariff levels as the Trump administration has yet to disclose plans on the implementation part, the pharma sector might witness a higher risk.

"India is also moderately exposed to potential tariffs on pharmaceutical product exports (President Trump has indicated he will likely impose tariffs on this product category), which account for 2.8% of overall exports and 0.3% of GDP," Morgon Stanley stated in a report.

Meanwhile, Trump’s 25% tariff on all steel and aluminum imports has already been implemented, while tariffs on Mexico and Canada have been delayed by one month.

Can India strike a deal before April 2?

It's difficult to say so. This is majorly owing to two reasons. First, there is a lot of uncertainty around how these tariffs will be imposed and which segment will be hit the hardest. Secondly, there are multiple bilateral trade issues.

On top of this, WTO's 'Most-favoured-nation' rule also complicates the situation for the country. India cannot unilaterally lower tariffs only for the US without extending the same benefit to all WTO members unless a formal Free Trade Agreement (FTA) is signed. " As it is, officials have guided for a Fall 2025 timeline for a possible US-India free trade agreement. This would imply that India would not be able to avoid reciprocal tariffs scheduled for April 2nd and that tariffs could likely go up in the meantime until at least the trade deal is reached," the report added.

As per Citi Research analysts, Trump's tariff call can cost India around $7 billion annually, with the auto and agriculture sectors bearing the brunt of the impact.

Indirect Effect of Tariffs

While direct risks from Trump's tariff stance are already well-present, the bigger concern is the indirect impact on economic growth.

The prevailing uncertainty around the implementation of the same might weaken corporate confidence, eventually impacting capex levels. As per the Morgon Stanley report, the bigger effect on growth from tariffs likely comes via the indirect transmission channel of weaker corporate confidence from heightened policy uncertainty and the spillovers to capex and trade cycle.

However, it is worth mentioning that India is less dependent on global trade compared to other Asian economies. Domestic demand levels could also help in offsetting some of the negative effects of the tariff policy.