The Economics of Protectionism: What is India’s Playbook in Trump’s 2025 Trade Wars

In early March 2025, President Donald Trump introduced significant tariff measures targeting key U.S. trade partners. This has effectively reignited global trade tensions reminiscent of previous tariff wars in Trump’s first tenure. The new policy includes tariffs of 25 percent on imports originating from Canada and Mexico, alongside a specific tariff rate of 10 percent on energy imports from Canada. Concurrently, Chinese goods face a 20 percent tariff. Experts initially projected a disruption of approximately $2.2 trillion in annual international trade flows resulting from these tariffs. However, current market reactions suggest the actual implications may significantly exceed those early forecasts. There is a greater tendency that this will generate deeper economic heats and geopolitical tensions.

The U.S. is currently citing several motivations for these aggressive tarrifs. Foremost among these is the aim to rectify perceived longstanding imbalances caused by “unfair” foreign tariffs. Additionally, the Trump administration intends to leverage these tariffs as tools to address broader policy concerns, notably the illegal trafficking of fentanyl, a potent synthetic opioid responsible for severe public health crises in the United States.

These protectionist measures rapidly induced volatility across global financial markets. Stock exchanges worldwide experienced immediate sell-offs as investor uncertainty signals strongly over potential disruptions to international trade and supply chains. In response, affected countries swiftly enacted countermeasures. China responded promptly by announcing retaliatory tariffs and filing formal complaints against the United States at the World Trade Organization (WTO). Similarly, Canada and Mexico pursued retaliatory actions and commenced legal proceedings under existing trade agreements such as the United States Mexico-Canada Agreement (USMCA).

Within this turbulent context, India has unexpectedly emerged as a prominent focus of U.S. trade scrutiny. Though initially not among the primary tariff targets, India’s significant trade surplus with the United States has drawn attention from President Trump, particularly due to India’s historically high tariff structure, exemplified by automotive duties surpassing 100 percent. The United States perceives such tariff levels as impediments to fair and reciprocal trade.

Consequently, India now faces considerable strategic challenges and must carefully navigate this evolving global trade landscape. The following sections of this article provide IGASO’s detailed analysis of sector-specific economic impacts, strategic diplomatic responses, emerging market opportunities, and critical policy implications arising from these significant trade disruptions.

Sectoral Economic Impact Analysis
Metals and Engineering Sector

India’s metals and engineering sectors are among the most directly exposed to President
Trump’s tariff activism. The U.S. administration’s decision to implement a 25 percent tariff on steel and aluminum imports directly threatens approximately $7.5 billion of India’s annual engineering exports. The immediate consequence includes heightened financial uncertainty for numerous small and medium-sized enterprises within the sector. Reduced orders from the U.S. market have already started to place financial strain on these businesses and have been reported as potentially limiting their growth prospects and sustainability.

An additional layer of vulnerability arises from the indirect effects of these tariffs. Steel
producers in China, Japan, and South Korea, now restricted from the U.S. market, are likely to redirect excess production into markets with fewer protective measures, including India. This redirection could significantly depress steel prices domestically, with industry projections estimating potential price declines of approximately ₹3,000 per ton. Such a decrease in steel prices might offer short-term benefits to industries dependent on steel as an input, including construction and automotive manufacturing. However, sustained price pressures could severely undermine profitability and capital investment within India’s domestic steel production industry.

Technology and Electronics Sector
India’s technology and electronics sectors confront both opportunities and risks in response to the U.S. tariff regime. Trump’s tariffs on consumer electronics imported from China are currently set at 20 percent. The Economist confirms that has compelled U.S. buyers to seek alternative sources. In this context, Indian electronics manufacturers stand to benefit considerably from this shift especially as global corporations relocate production facilities away from China. The expansion of production activities by major multinational companies such as Samsung and Apple’s suppliers within India underscores this emerging opportunity. Increased investment flows into the Indian electronics sector could also stimulate job creation and elevate India’s prominence in the global electronics value chain.
Nevertheless, the broader U.S. tariff strategy raises uncertainties within global technology
supply chains. India’s ambitions to establish itself as a semiconductor production hub could face challenges due to these tariff-induced disruptions. Though India currently lacks significant semiconductor production capacity, sustained policy support and investment incentives from the Indian government could transform these short-term disruptions into long-term opportunities and position India favorably within the global semiconductor market.

Pharmaceutical Sector
India’s pharmaceutical industry is globally recognized as a major supplier of generic medicines. In the current labyrinth of tariffs, this sector also faces mixed implications. In one part, the sector depends heavily on the U.S. market and this is where India provides a substantial share of generic medicines. Any imposition of tariffs by the U.S. on pharmaceutical imports from India could significantly increase operational costs for Indian pharmaceutical firms. This will undoubtedly reduce their competitive advantage in the American market. Maybe this could be one of the intentions of the trump administration.
However, simultaneous disruptions in U.S.-China trade relations present India with
opportunities to strengthen its position as an alternative pharmaceutical supply base. Indian government initiatives currently aim to enhance domestic production capacities, particularly for active pharmaceutical ingredients. These strategic moves will reduce India’s heavy reliance on Chinese raw materials and position their pharmaceuticals as reliable alternatives amid ongoing trade tensions. Such strategic investments could insulate their pharmaceutical sector from future shocks and bolster its global competitiveness.

Textiles and Apparel Sector
For many trade experts, India appears well-positioned to capitalize on shifts in U.S. trade policy. Tariffs imposed on Chinese textile products have made Indian textile exports comparatively more competitive in the U.S. Early indicators suggest increased sourcing by U.S. buyers from Indian producers as they search for cost-effective alternatives to Chinese suppliers.
However, India faces significant internal constraints in fully realizing this opportunity. To capture a larger share of redirected textile trade, India must urgently address structural limitations, including scaling production capacities and improving overall cost competitiveness. Strategic initiatives, such as government-supported textile parks and modernization incentives, could substantially enhance India’s capability to meet increased global demand and ensure sustained growth within this critical export sector.

Agricultural Sector
Our observation confirms that the agricultural sector remains comparatively insulated from direct impacts of U.S. tariffs, due primarily to India’s modest agricultural export volumes to the U.S. However, agriculture retains strategic importance in trade negotiations between India and the United States. Indian policymakers have indicated a willingness to offer targeted concessions on select agricultural imports from the U.S. We believe these gestures will secure favorable trade conditions in sectors more vital to India’s economy, such as technology and
pharmaceuticals.
Furthermore, as trade dynamics evolve, India’s agricultural sector could identify alternative markets, such as Mexico and Canada, whose trade relationships with the U.S. have similarly deteriorated. Strategic engagement with these alternative markets might mitigate any adverse impacts arising from future shifts in U.S. agricultural import policies.

Strategic Diplomatic Responses and Economic Realignment
We have observed how India has actively responded to the new tariff environment through strategic diplomatic engagements and realignment of its economic policies. Recognizing the complexity and volatility inherent in trade disputes with the United States, We note that the Indian government has prioritized dialogue and negotiation rather than direct confrontation. The first of such indicator was in February 2025 when Prime Minister Narendra Modi visited Washington, D.C. to engage directly with the U.S. administration. During this high-level diplomatic visit, India offered targeted tariff concessions on select products important to American industries. These concessions were strategically chosen to ease bilateral tensions and pave the way for negotiations on a broader and mutually beneficial trade agreement. Following Prime Minister Modi’s initial diplomatic outreach, India’s Commerce Minister, Piyush Goyal, undertook subsequent visits and discussions with U.S. counterparts. Goyal underscored India’s readiness to negotiate tariff adjustments selectively with the aim to mitigate adverse impacts from potential reciprocal tariffs imposed by the United States. These diplomatic efforts have signaled India’s willingness to compromise in specific areas to safeguard broader economic interests. Through careful negotiation, India seeks to maintain critical market access to the U.S. while reducing potential disruptions to its major export sectors.
Simultaneously, India has also accelerated efforts to diversify its economic partnerships and reduce dependence on the U.S. market. Enhanced engagement with the European Union, the United Kingdom, and countries within the Indo-Pacific region represents a core element of India’s strategic economic diversification. Initiatives such as the Quad partnership with Japan, Australia, and the United States, along with the Supply Chain Resilience Initiative, provide frameworks for securing robust and reliable supply chains less vulnerable to unilateral trade disruptions.
Our interesting observation is that India’s recent focus on establishing the Indo-Abrahamic Economic Corridor further illustrates its proactive stance toward economic diversification. This strategic infrastructure initiative connects India with Middle Eastern economies and Europe as it opens new avenues for trade and investment independent of existing trade disputes. We also note how India leverages a rules-based international trading strategy to confront any direct tarrif war with US. Their advocacy at global forums, such as the WTO and G20, consistently reinforces the importance of multilateral negotiation and cooperation. Through diplomatic leadership, india has been impressive in mediating between developed and developing countries by advocating reforms in international trade governance that reflect equitable and sustainable economic growth priorities.

Long-Term Policy Implications and Institutional Impact
The tariff measures initiated by President Trump carry significant implications for India’s long term economic and trade policy landscape. India’s policy orientation may undergo considerable adjustments in response to the heightened risks and emerging opportunities presented by these developments. A central theme likely to guide future policies is India’s pursuit of economic resilience and self-reliance. The Indian government has already introduced Production Linked Incentive schemes in key sectors such as pharmaceuticals, electronics, and renewable energy. The strategic objective of these schemes is to bolster domestic manufacturing capabilities and reduce vulnerabilities associated with external market disruptions.
India’s historical reliance on high tariff barriers, particularly in sectors like automobiles and electronics, may undergo strategic recalibration. Policymakers are increasingly inclined to selectively lower tariffs on specific inputs and intermediate goods. Such tariff reductions could enhance the competitiveness of Indian manufacturers by lowering their production costs. Lower tariffs on key U.S. imports, including steel scrap and agricultural products, may simultaneously reduce U.S. grievances about India’s trade policy and foster improved bilateral trade relations.
Additionally, India’s long-term policy response is expected to emphasize diversification of
economic partnerships. Recent engagements to negotiate bilateral trade agreements with key markets, notably the European Union, the United Kingdom, and other emerging trade partners in Asia, are accelerating. Successful completion of these agreements would broaden India’s global market access and reduce its dependence on the United States. In doing so, India can strategically mitigate the potential risks associated with unilateral tariff actions by major trade partners.
At an institutional level, Trump’s protectionist policies present challenges to the credibility and effectiveness of multilateral trade institutions, particularly the World Trade Organization (WTO). The current U.S. tariff approach undermines established principles of dispute resolution, negotiation, and consensus-based decision-making. However, India’s long-standing reliance on WTO mechanisms to protect its trading interests underscores its stake in ensuring these institutions remain robust and functional. Consequently, India is likely to play an active role in advocating for WTO reform.
India may as well adopt a leading role among developing countries in advocating for reforms to the global trade governance system. Such reforms may include reinforcing institutional frameworks and promoting equitable trade practices. Through strategic alliances within platforms such as the G20 and BRICS, India could further its position as a credible mediator capable of bridging the gap between developed and developing economies. Diplomatic efforts in these forums could restore confidence in the international trading system by promoting the importance of multilateral agreements over unilateral actions.
Moreover, India’s advocacy for a fair and balanced trade regime provides an opportunity to reinforce its global leadership position.

Conclusion
The tariff measures enacted by President Trump in 2025 create both immediate disruptions and strategic opportunities for India. These protectionist policies initially pose significant challenges for Indian sectors such as metals, pharmaceuticals, technology, and textiles. However, India’s proactive diplomatic engagement, coupled with targeted domestic policy
adjustments, demonstrates the country’s capacity to adapt effectively to this shifting global economic environment. The strategic redirection of global supply chains, coupled with India’s initiatives to diversify trade partnerships, presents notable opportunities for sustained economic growth and enhanced global influence.
To navigate the current global trade dynamics successfully, our review establishes the
following recommendations:
1. Prioritize Competitiveness through Tariff Reforms
India should selectively lower tariffs on critical raw materials, intermediate goods, and technology inputs. Reduced tariffs on imports from strategic partners, including the United States, could enhance domestic manufacturing efficiency. This will help to stimulate local industries and reduce international friction simultaneously.
2. Accelerate Investment in Critical Manufacturing Sectors
India should substantially expand and accelerate existing incentive programs, including Production Linked Incentive (PLI) schemes, in critical sectors such as electronics manufacturing, pharmaceuticals, renewable energy, and automotive components. Strategic investment incentives could facilitate significant scaling of production capacities, improving India’s attractiveness as a global manufacturing hub.
3. Enhance Supply Chain Resilience and Diversification
India should proactively pursue economic partnerships with diverse global markets, particularly within the Indo-Pacific region, Africa, and Europe. Prioritizing regional trade agreements, infrastructure initiatives, and multilateral economic corridors like the Indo-Abrahamic Economic Corridor would further diversify India’s trade
channels. Such diversification would substantially mitigate India’s exposure to unilateral protectionist actions by major economies, enhancing overall economic stability.
4. Strengthen Leadership in Global Trade Governance
India should actively participate in multilateral negotiations aimed at reforming global trade institutions, including the World Trade Organization. Enhanced advocacy for equitable trade policies and strengthened dispute resolution mechanisms would benefit both India and developing economies broadly. India’s leadership within platforms such as the G20, BRICS, and Quad would strategically position it as a key voice shaping the future of international economic governance.
In adopting these strategic recommendations, India could convert tariff-induced disruptions
into long-term structural advantages. These will enable India to transition from managing short
term trade uncertainties to effectively leveraging global economic shifts. India’s focused
approach to economic policy reforms, diplomatic realignments, and strategic partnerships will
not merely address the immediate impacts of tariffs. Instead, these steps will set the foundation
for sustained economic growth, greater global competitiveness, and enhanced international
influence.
Further reading:
• As Trump launches the tariff war, how can India safeguard its interests?
https://www.business-standard.com/economy/news/trump-us-reciprocal-tariffs-impact-indiatrade-strategies-125030700334_1.htmlbusiness-standard.com
• How tariff cuts on US imports impact India’s economic growth: https://www.downtoearth.org.in/economy/how-tariff-cuts-on-us-imports-impact-india-s
economic-growthDown To Earth
• To get past US tariffs, India to take FTA route; increased market access, lower duties on cards.: https://m.economictimes.com/news/economy/foreign-trade/to-get-past-us-tariffs
india-to-take-fta-route-increased-market-access-lower-duties-on
cards/articleshow/118903050.cmsm.economictimes.com+1m.economictimes.com+1
• India-US trade relations under Trump’s tariffs.: https://www.india
briefing.com/news/india-us-trade-relations-under-trumps-tariffs-36416.html/India Briefing
• India vows to avoid protectionist signals on trade, says top official.: https://www.reuters.com/world/india/india-vows-avoid-protectionist-signals-trade-2025-02
03/reuters.com
• US tariffs from April 2? India weighs trade strategy.:
https://m.economictimes.com/news/economy/foreign-trade/us-tariffs-from-april-2-india
weighs-trade-strategy/articleshow/118742857.cms
m.economictimes.com+1m.economictimes.com+1
• India weighs zero-tariff strategy as Trump’s trade war looms, think tank warns of escalation.: https://www.fortuneindia.com/economy/india-weighs-zero-tariff-strategy-as
trumps-trade-war-looms-think-tank-warns-of-escalation/120958Fortune India
• US tariff war may impact India’s pharma, textile, autocomp exports: CRISIL: https://www.moneycontrol.com/news/economy-2/us-tariff-war-may-impact-india-s-pharma
textile-autocomp-exports-crisil-12958243.htmlMoneycontrol
• How India should respond to Trump’s tariff threats: https://www.firstpost.com/opinion/how-india-should-respond-to-trumps-tariff-threats
13870015.htmlfirstpost.com
• How India can navigate global trade shifts in Trump 2.0.: https://thediplomat.com/2025/02/how-india-can-navigate-global-trade-shifts-in-trump-2-0/
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