Trump’s tariffs may be the wake-up call India needs

Donald Trump’s return to the White House has revived his signature style of economic policy: leading with grievance, a deeply nostalgic vision of global trade, imposing punitive tariffs and a quest for deals. The effects on the US and its trading partners have been chaotic.

Whilst analysts try to predict the impact from the shattered pieces of regional and global trade agreements and norms, for India, this knock might be the wake up call it desperately needs.

At first blush, Trump’s tariff threats seem like trouble. India runs a healthy trade surplus with the US and leans heavily on the services sector – particularly IT exports – to offset an underwhelming manufacturing base. Any disruption could hurt the comfortable status quo.

But look closer, and Trump’s renewed protectionism might just be the push India needs to confront its own illusions of industrial grandeur.

Infant industries, elderly outcomes

India has long shielded its domestic industries with high tariffs, licensing regimes, and localisation mandates. However, decades of “infant industry” protection have produced surprisingly few grown-ups.

With an average applied tariff rate of 17% in 2023, India ranks among the most protectionist large economies. In contrast, South Korea’s average applied tariff was 13.6%, China’s was 7.5%, and Indonesia’s stood at 8.1%.

Unlike South Korea or...

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