With Donald Trump being sworn in as the new President of the US, India is keeping a close watch on the impact of his policies on the domestic economy. A number of inter-ministerial parleys have already taken place and ministries have been working on various strategies to offset any impact of his announcements. But, as of now the government remains in wait and watch mode, sources noted.
Trump’s tariff policies remain a key monitorable for India, and the Union Budget 2025-26 is looking at rationalising and lowering customs duty on various items as part of a planned review, but this is also expected to send a positive signal to the US on India’s tariff stance.
On Day 1, Trump signed an executive action to investigate the reasons for the US’s trade deficit with foreign nations, which is likely to include the issue of tariffs. He has also announced that he would impose 25% tariff on imports from Canada and Mexico from February 1, but has not elaborated any further tariff action plans for now.
“President Trump’s 2025 executive orders issued on day one carry both challenges and opportunities for India. While they may create strategic and economic disruptions, they also offer India the chance to reassess its energy policies, bolster public health infrastructure, and reduce dependencies in critical sectors,” noted Ajay Srivastava, Founder of economic think tank Global Trade Research Initiative (GTRI) in a report, adding that the numerous executive orders on the day one are just the beginning. “We should be ready for surprises on tariffs and trade soon,” he said.
Concerns of a global tariff war are also increasing with expectations that Trump will increase tariffs across the board on imports.
Macquarie’s global strategists Viktor Shvets and Kyle Liu in a report said that they expect that under Trump 2.0, US average tariffs will likely double from about 5% to about 10%. “We also continue to believe that punitive across the board tariffs are unlikely, even as a negotiating tactic,” they said.
Nomura analysts believe that China will likely face the largest tariff increases among US trading partners, including many consumer goods that were not targeted in Trump’s first term.
“We expect Trump to largely follow through on his campaign promise, but the proposals are likely to be softened, especially for tariffs on Canada and Mexico, in our view. We expect Chinese tariffs to be raised by 35pp cumulatively. In addition, Trump will likely impose 10% additional tariffs on many other countries in Europe and Asia and 5% tariffs on Mexico. As a result, we expect the effective tariff rate on US imports will increase to around 10%,” they said in a report.
Trump’s other executive orders, including plans to end automatic citizenship for children born in the US to non-citizen parents, could also have a direct impact on India but could see a legal challenge.
“President Donald Trump’s proposal to end automatic citizenship for children born in the US to non-citizen parents has raised significant concerns among Indian families. This policy would directly affect thousands of children born to Indian parents holding U.S. green cards or serving as Indian diplomatic staff, potentially altering their long-term residency and citizenship trajectories,” said the note by GTRI.
Meanwhile, the impact of Trump’s policies on inflation as well as the rupee also needs to be watched out for. There are concerns that his policies could fuel inflation in the US leading to the Federal Reserve increasing interest rates. This could have ramifications on the global economy.