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Impact Of US Reciprocal Tariffs On India’s Agricultural Trade

The US proposal for reciprocal tariffs under Donald Trump’s trade policy threatens India’s agricultural exports, particularly shrimp, basmati rice, and processed foods. Given the significant tariff disparity between India and the US, these new duties could disrupt India’s trade surplus, making strategic negotiations essential to ensure market access and sustain competitiveness.

Rising Trade Tensions And Agriculture’s Vulnerability

  • US Tariff Push: Donald Trump’s emphasis on reciprocal tariffs is aimed at reducing the US trade deficit by matching import duties imposed by other countries on American goods.
  • India’s Trade Deficit Contribution: The US trade deficit surged to $918.4 billion in 2024, with China accounting for the highest share at $295.4 billion, whereas India’s share was relatively smaller at $45.7 billion.
  • Targeting India’s Tariffs: Trump has frequently criticized India for its high tariffs on American imports, referring to it as the “tariff king”.

Tariff Disparity and Its Impact on Agricultural Trade

  • General Tariff Comparison: India imposes an average tariff of 17% on all goods, while the US imposes only 3.3%. The trade-weighted tariffs further highlight the gap—12% in India vs. 2.2% in the US.
  • Agricultural Tariffs:
    • India’s simple average tariff on agricultural goods is 39%, with a trade-weighted tariff of 65%.
    • The US, in contrast, has much lower tariffs—5% (simple average) and 4% (trade-weighted).
    • Potential Risks: If reciprocal tariffs are applied, Indian agricultural exports to the US could face severe price competitiveness issues, particularly duty-free exports like shrimp.

Threat to India’s Agricultural Exports

  • US as India’s Top Agri-Market: The US is India’s largest agricultural export destination, contributing to a trade surplus of $3.46 billion in 2023-24.
    • Key Indian Exports to the US: Shrimp, basmati rice, processed foods, and honey.
    • Key US Exports to India: Almonds, cotton, ethanol, and soybean oil.
  • Consequences of Tariff Implementation:
    • Indian agri-exports may become uncompetitive, particularly shrimp and basmati rice.
    • US agricultural imports to India may increase, reducing or eliminating India’s agricultural trade surplus.
    • Negotiations are crucial to secure market access for Indian exports while balancing US demands for lower import duties on its goods.

Balancing Trade and Agricultural Reforms

  • Trade Agreement Discussions: India and the US are engaged in discussions for a broader trade agreement under “Mission 500”, which aims to increase bilateral trade to $500 billion by 2030.
  • Scope for Market Expansion: India has potential to increase agricultural exports to the US, but certain Indian products face high import duties in the US:
    • Food preparations, butter, and bovine meat cuts face tariffs exceeding 20%, which can be negotiated for reduction.
  • Strategic Policy Adjustments for India:
    • Enhancing R&D Investments: India’s current agricultural R&D spending is below 0.5% of agri-GDP, which is far lower than global standards. Increasing this to at least 1% is essential for long-term competitiveness.
    • Modernizing Agri-Value Chains: Expansion of cold storage, logistics, quality certification, and traceability mechanisms is crucial for boosting export capabilities.
    • Developing Agri-Export Hubs: Dedicated clusters for high-value exports like banana, mango, mango pulp, and pomegranate should be developed, targeting markets in Russia, Korea, Japan, and Australia to reduce over-reliance on the US.

A Turning Point for India’s Agricultural Trade Strategy

  • Rethinking Tariff Dependence: India must transition from reliance on protective tariffs to a productivity-driven export model.
  • Long-Term Gains Over Short-Term Fixes: While tariff concessions might offer short-term relief, India’s future in global agricultural trade depends on investments in competitiveness rather than tariff barriers.
  • Strategic Action Needed: The US tariff threat should be a wake-up call for Indian policymakers to push for smart negotiations, infrastructure development, and policy shifts that enhance India’s global agricultural trade position.

Source: Wake-up call for policymakers, Financial Express, March 3, 2025

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