Trump Tariffs Will Put Modi’s Farm Policy To Test

Soon after announcing the reciprocal tariff, the White House put out a factsheet talking about India’s high tariff: The US average applied Most Favored Nation (MFN) tariff on agricultural goods is 5 per cent. However, India’s average applied MFN tariff on farm produce is 39 per cent. India also charges a 100 per cent tariff on US motorcycles, while the US only charges a 2.4 per cent tariff on Indian motorcycles.

India has historically relied on protective tariffs to safeguard domestic farmers, and retaliatory measures from the US could reduce market access for Indian agricultural products. The challenge for India is to balance domestic agricultural interests while ensuring that trade relations with the US remain stable.

Agri Export In Line Of Fire

Overall, it seems that in the case of reciprocal tariffs in agriculture, India’s agri-exports to the US may come down, and its imports from the US will go up, thereby reducing or even wiping out the country's agri-trade surplus.

According to WTO data, India imposes significantly higher tariffs than the US, with a simple average rate of 17 per cent on all goods, compared to about 3.3 per cent imposed by the US. The trade-weighted tariffs further highlight this gap — 12 per cent in India vs 2.2 per cent in the US.

However, the most striking difference is in the agriculture sector, where India’s tariffs are notably higher — the simple average tariff is 39 per cent, and the trade-weighted average is 65 percent. In comparison, the US maintains relatively low agricultural tariffs, with a simple average of 5 percent and a trade-weighted rate of 4 per cent.

“Given this stark tariff disparity, the proposed reciprocal tariffs could have a substantial impact on India’s agricultural exports to the US, which is the largest trading partner of India,” noted agriculture expert Ashok Gulati of the Indian Council for Research on International Economic Relations (ICRIER) wrote in the latest policy brief.

Gulati said, “to mitigate these challenges and sustain long-term export growth, India must transition from tariff-based protectionism to productivity-driven competitiveness."

This brief outlines three key policy recommendations: (i) phased tariff reduction on select outlier commodities, (ii) increased investment in agricultural research and development (R&D) to enhance yields and competitiveness, and (iii) strengthening agricultural value chains to boost exports.

By adopting these strategies, "India can navigate the evolving global trade environment while ensuring the resilience and growth of its agricultural sector.”

Bourbon Giveaway May Be A Beginning

Trade analysts said the bourbon giveaway is just the first act in what promises to be a bruising trade battle. Trump is far from done — his administration is already eyeing deeper concessions on agriculture, industrial goods, and services. With India’s trade surplus in the crosshairs, Modi will have to decide: fight back or keep giving in.

Biswajit Dhar, a trade expert, warned of the potential consequences. “Washington has been pushing hard to open India’s market to US agricultural products. This could have serious implications, given that more than 55 per cent of India’s population depends on agriculture for their livelihood,” he said.

Professor Ram Singh of the Indian Institute of Foreign Trade (IIFT) echoed these concerns. “Trump’s strategy appears to be a 360-degree bulwark of a lose-lose trade war. However, his transactional and unpredictable style often forces countries into negotiations, only for him to demand an even better deal for America. Given this pattern, we can expect some form of Free Trade Agreement (FTA) discussions in the next few months,” he said.

The US is the largest exporter of bourbon whiskey to India, accounting for roughly one-fourth of India’s total bourbon imports. In 2023-24, India imported bourbon worth US$ 2.5 million, with the US supply valued at US$ 750,000. But this token concession is unlikely to satisfy Trump, who has long railed against what he calls India’s unfair trade practices.

Indian Agri Export Guarded Till Now

India has enjoyed a consistent trade surplus over the years, with a value of US$ 35.3 billion in total commodities exports and US$ 3.46 billion in agri-products for 2023-24. India’s key agricultural and marine exports to the US include frozen shrimp and prawns, basmati and non-basmati rice, vegetable saps and extracts, natural honey, and processed food products.

In 2023, the United States exported US$ 178.7 billion worth of agricultural products globally, which was a US$ 17 billion decrease from 2022. The US primarily exports soybeans, maize, wheat and rice. The top destinations for US agricultural exports include China, Canada, and Mexico.

The US farm products exports to India include apples, almonds, cotton, denatured ethyl alcohol, crude soybean oil, and pistachios.

The 50 per cent duty on fresh apples was recently reduced to 15 per cent following negotiations. Skimmed Milk Powder (SMP) still attracts 60 per cent tariff, making imports unviable despite India's domestic demand fluctuations.

Dairy products, including fresh cheese and curd, are also subject to 30 per cent import duties, restricting the entry of US dairy products into the Indian market. Cereal preparations, such as corn flakes and breakfast cereals, are taxed at 30 per cent.

Cut chicken legs, a product that the US has long sought market access for, faces a 100 per cent tariff.

On the other hand, India’s exports of frozen shrimp and prawns, one of India's largest agricultural exports to the US, enter duty-free, while preserved shrimp faces a 5 per cent tariff.

Rice faces a consistent tariff duty of 11.2 per cent over the years. Products such as guar gum, vegetable extracts, and natural honey face minimal to zero tariffs.

India Hopes To Cushion Impact

The imbalance raises concerns about the impact on India’s agri-exports if uniform reciprocal tariffs are implemented by the US, especially in food preparations, dairy products, and shrimps. The challenge for India is to balance domestic agricultural interests while ensuring that trade relations with the US do not worsen.

New Delhi is hopeful that “trade issues can be sorted mutually” as India-US ties are “multifaceted” in line with the understanding arrived at the meeting between Prime Minister Modi and President Trump.

“We have a roadmap that will ensure we sort out any issue through consultations,” officials said.

Commerce Minister Piyush Goyal has rushed to the US for urgent trade talks, just as the clock ticks down to President Donald Trump’s looming reciprocal tariffs.

Goyal's week-long visit includes meetings with US Trade Representative (USTR) Jamieson Greer and US Commerce Secretary Howard Lutnick.

During Prime Minister Narendra Modi’s recent visit to Washington, both nations committed to more than doubling their bilateral trade to US$ 500 billion by 2030 and negotiating the first phase of a broad-based trade agreement (BTA) by fall 2025.

The USTR is studying tariff and non-tariff barriers that American exporters face across the world. The study will be followed by the imposition of reciprocal tariffs by April 2 on all the countries with which the US trades.

Apart from India, the UK is the only other country that has been offered a negotiated deal so far by the Trump administration to avoid friction on trade matters.

With bilateral trade exceeding US$ 125 billion in 2024, Indian businesses are bracing for the impact. "If tariffs are applied sectorally, entire industries could be crippled," a senior trade official said.

Bilateral Trade Volume Matters

In 2023, total US-India bilateral trade in goods and services reached US$ 190.08 billion, with India's merchandise exports at US$ 83.77 billion and imports at US$ 40.12 billion, creating a trade surplus of US$ 43.65 billion in India's favor. India's services exports to the US amounted to US$ 36.33 billion, with imports at US$ 29.86 billion, resulting in a US$ 6.47 billion surplus.

Between 2021 and 2024, the US remained India's largest trading partner. In 2023-24, bilateral goods trade totaled US$ 119.71 billion, with Indian exports at US$ 77.51 billion and imports at US$ 42.19 billion, leaving a surplus of US$ 35.31 billion.

The US is also a key investor in India, having contributed US$ 67.8 billion in foreign direct investment (FDI) from April 2000 to September 2024.

The size of bilateral trade matters, and what India does to counter reciprocal Trump tariffs will decide the future of a substantial part of its economy.

(Author is a well-known economic journalist and analyst)