What the “Golden Age of America” means for the Indian Economy

India’s trade relations with the United States of America have long been a cornerstone of its global economic strategy, with the United States serving as its largest trading partner and a key destination for exports across pharmaceuticals, IT services, engineering, and electronics goods. As global economic dynamics shift, India must carefully navigate this relationship to sustain its export-driven growth. India’s exports to the United States have steadily increased, reaching USD 77.5 billion in FY24, with an average annual growth rate of 10.3 percent over the past three decades, as per a report by the Bank of Baroda. Now, with both countries aiming to double bilateral trade to $500 billion by 2030 and a bilateral trade agreement (BTA) under negotiation, India must focus on strengthening its IT services and pharmaceutical sector’s competitiveness while also taking conscious steps to expand into new markets and diversify its export destinations.

The return of Donald Trump to the White House signals significant shifts in global trade policies. The Trump administration’s previous term was marked by aggressive trade negotiations, higher tariffs and a strong push for domestic manufacturing under the “America First” agenda. With April 2 2025, approaching, India must brace itself for a potential massive rise in tariffs that could disrupt its export-driven economy. Over the past decade, exports to the U.S. from India have grown steadily, driven by pharmaceuticals, software services, engineering goods, gems and jewelry, textiles and electronics. With the sharp rise in tariffs fast approaching, it is worthwhile for the Indian economy to seek opportunities to renegotiate trade deals and explore alternative markets to cushion itself from the potential impact of what Trump calls the “Golden Age of America”.

The engineering sector, for instance, is a key component of India’s exports to the U.S and is particularly vulnerable to rising tariffs and shifting trade policies. Engineering goods accounted for 25.22% of India’s total exports in FY 2023-24, with the U.S. remaining the top export destination. Despite global trade disruptions, India’s engineering exports to the U.S. grew by 18% year-on-year in January 2024, reaching $1.62 billion, and by nearly 9% in the April-January period of FY 2024-25. However, with protectionist policies on the rise, sustaining this growth could become increasingly difficult.

Electronics, another one of India’s key exports to the U.S, faces potential disruptions if reciprocal tariffs are imposed. India has positioned itself as a global electronics manufacturing hub, with exports of smartphones, semiconductors and electronic components steadily rising, contributing significantly to the country’s overall export income. In 2023, India’s exports of electrical and electronic equipment to the U.S. stood at $9.89 billion, while total electronics exports reached

$29.12 billion in FY24, marking a 23.6% increase over the previous year. The United States and the United Arab Emirates are the two largest markets for Indian electronics exports. Any tariff hike could impact India’s competitiveness, particularly as the country aims to expand its footprint in high-value electronics and strengthen its position in the global supply chain. Similarly, the gems and jewelry sector, which employs over two lakh people and is a major contributor to exports, is at risk. The hardest-hit segments would be gold jewelry and cut and polished diamonds, which form a substantial portion of India’s jewelry exports to the U.S. Currently, India imposes a 20% tariff on gold jewelry from the U.S., whereas the U.S. levies only 5.5-7% on Indian gold jewelry. Likewise, India charges a 5% tariff on cut and polished diamonds, while the U.S. does not impose any duties on these imports. A shift in tariff structures could hamper India’s competitive edge, further straining a sector already impacted by geopolitical uncertainties such as the Russia-Ukraine war and the Israel-Gaza conflict.

India’s pharmaceutical industry remains a key pillar of its export economy, supplying high-quality pharma products. With 70% of exports directed to highly regulated markets like North America and Europe, India has solidified its position as a global pharmaceutical hub. In FY24, the U.S. was the second-largest importer of Indian pharmaceuticals at $8.73 billion, while South Africa emerged as the top destination, accounting for $718.54 million. In the wake of potential tariff rise in the U. S. market taking effect from April, India must make a more conscious effort to maintain and strengthen ties with its largest export destination, South Africa, to ensure further progress in trade and continued harmony in trade relations .Further, the ban on USAID will reportedly impact the Indian pharma industry as many organisations like WHO procure a large quantity of medicines, especially related to AIDS, TB, and Vaccines from the Indian companies for supply to the poor in the African and Latin American nations, making the issue humanitarian rather than economic.

India’s ready-made garment (RMG) exports to the U.S. have seen steady growth over the past five years, with its share rising from 22.37% in 2017 to 31.52% in 2021. While India accounts for approximately 4-5% of the U.S. apparel import market, the United States remains a critical

destination, receiving 20-30% of India’s total RMG exports. India, the world’s sixth-largest textiles and apparel exporter in 2023, relies heavily on the U.S. and EU, which together account for 47% of its total textile and apparel exports. The negative impact of the potential high tariffs could further lower the already meager share of Indian RMG exports in the U.S. market. India is visibly more dependent on the U.S. market for its RMG exports than the U.S. is on Indian RMG goods. It may be worthwhile for India to take strategic steps in penetrating other market destinations around the world and/or further its penetration in the EU, which is its second-largest export destination for RMG.

India is not without options to mitigate potential economic disruptions due to rise in tariffs. Diversifying export markets is essential to reduce overreliance on the United States. Europe

presents a strong alternative, already accounting for a significant share of India’s software, pharmaceuticals, engineering goods, and RMG exports. Strengthening trade ties with Germany, France, and the Netherlands could counterbalance any potential losses. The UAE and the Middle East also offer promising opportunities, as the UAE is India’s second-largest electronics market and a major petroleum buyer. Additionally, Southeast Asia’s ASEAN nations, including Singapore, Malaysia, and Vietnam, provide another avenue for expansion through India’s existing Free Trade Agreement (FTA) with the region.

India’s software services exports remain a hidden strength in its trade portfolio, unaffected by tariff hikes and continuing to be a vital contributor to the economy. In 2023-24, total software service exports, including those delivered through foreign affiliates, rose to $205.2 billion, with the U.S. being the largest destination, accounting for 54% of exports, followed by Europe at 31%. Despite global economic shifts, India’s dominance in IT and business process outsourcing (BPO) services remains robust, driven by strong offsite service delivery, which now constitutes 90% of total software exports. However, with potential restrictions on H-1B visas and stricter immigration policies under a Trump administration, India must take proactive measures to sustain its leadership in the global IT sector. Substantial government investment in IT education and skill development is essential to ensure a steady pipeline of high-quality talent, securing India’s competitive edge and future growth in the sector.

Diplomatic efforts, tariff relaxations and leveraging India’s manufacturing and services strength are key to sustaining its position in the U.S. market. Minister Piyush Goyal’s visit to Washington for trade talks will be crucial in securing favourable terms. While a second Trump administration may pose challenges, they are not insurmountable. By diversifying exports, strengthening diplomatic ties and boosting domestic manufacturing, India can mitigate risks and sustain growth. The world economy is shifting, and India must be prepared to adapt to new global trade realities, ensuring that it remains a formidable player on the international stage, regardless of who occupies the White House.