US-India Tariff War Escalates Amid Strategic Tensions and Trade Imbalance

KATHMANDU: The longstanding strategic and economic relationship between the United States and India is witnessing fresh turbulence as a renewed tariff war unfolds, stoking fears of trade disruption, legal challenges at the World Trade Organization (WTO), and negative implications for bilateral exports and imports.

This week, the United States Trade Representative (USTR) reportedly raised concerns over what it calls India’s discriminatory tariffs and import restrictions, especially on technology products, agricultural commodities, and medical devices. In retaliation, India hinted at revisiting its tariff structures on American goods, including high-value items such as motorcycles, almonds, apples, and solar energy components.

While the two democracies have frequently touted their growing strategic defense ties, including collaborations on semiconductors and clean energy, this latest trade dispute could undermine investment confidence and economic cooperation, especially in the private sector.

Background to the Conflict

The roots of the current tension can be traced to the Trump-era tariffs imposed on global steel and aluminum exports to the US, which led India to impose retaliatory duties on 28 American products. Though relations improved during the Biden administration with the termination of six WTO disputes in 2023, fresh disagreements have re-emerged over India’s new import licensing rules and customs valuation mechanisms.

The USTR has criticized these rules, claiming they violate WTO norms and discriminate against foreign companies, especially US firms. On the other hand, India defends its actions, citing the need to protect domestic industries, promote self-reliance (Atmanirbhar Bharat), and ensure national security.

USTR Considers Legal Action

In a strongly worded statement, the USTR announced it is “considering legal recourse” at the WTO to challenge India’s new trade barriers, especially those that allegedly “lack transparency, limit market access, and are not based on objective criteria.”

This includes the recently implemented quality control orders (QCOs) and license-based import rules, which are affecting billions of dollars in US exports across sectors like electronics, dairy, e-commerce, and automobiles.

India’s Countermoves and Domestic Pressure

India, facing increasing trade deficits with China and a delicate global economic situation, is unlikely to yield without pushing back. Officials from India’s Ministry of Commerce have reportedly convened high-level discussions to review tariff options on additional US-origin products, signaling that India is prepared for a prolonged trade standoff if needed.

The domestic political pressure is also mounting in India to resist “unfair trade practices” and protect local manufacturers, especially in sensitive sectors like agriculture, solar energy, pharmaceuticals, and edtech.

Business and Investor Impacts

The tariff war has sparked alarm among multinational corporations, foreign investors, and global supply chain analysts, who fear that trade frictions between two of the world’s largest economies could lead to higher costs, regulatory uncertainty, and disruption in production cycles.

Key American exporters, such as California almond and apple growers, tech companies like Apple and Dell, and medical suppliers, are reportedly lobbying the US government to reach a diplomatic settlement quickly.

Meanwhile, Indian exporters of textiles, auto parts, and steel are also worried that any additional tariffs could reduce their competitiveness in the US market.

WTO and Global Implications

The World Trade Organization is expected to play a significant role if the dispute escalates further. Experts note that while both nations are bound by WTO commitments, geopolitical shifts, including the rise of geo-economic protectionism, have made trade conflict resolution more complex.

Observers also fear that the tariff battle could embolden other countries to adopt unilateral tariff measures, leading to a weakening of the global rules-based trade order.