India’s rise as a global economic force is not merely the result of domestic ambition—it is increasingly a product of how the world positions India: as both a lever of influence and a point of geopolitical vulnerability. India and the US have concluded the second round of Bilateral Trade Agreement talks concluded on 26 April 2025. The pending BTA, which both sides hope to finalise before Trump’s 90-day tariff reprieve ends in July, has turned theoretical scenarios into immediate choices for Delhi. President Trump’s renewed focus on protectionist tariffs, a resurgence of re-dollarisation, and growing indifference to environmental multilateralism all point towards a trade order undergoing tectonic shifts.
This article explores evolving scenarios in global trade, with a particular focus on India–US economic relations under Trump’s incoming administration. Using the framework of game theory, we examine synthetic but plausible outcomes and their implications for Indian trade policy.
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What is on the negotiating table
The second formal round of India-US Bilateral Trade Agreement (BTA) talks wrapped up in Washington on 26 April 2025. Negotiators have set themselves an ambitious target: conclude a “phase-one” deal by early July, before President Trump’s 90-day tariff pause expires. Delhi is pressing for blanket exemptions from the new 10% global surcharge and the additional 26% duties threatened on Indian goods, while Washington wants deeper market access in agriculture, digital trade and defence procurement. The two sides have also begun sketching a separate annex on services mobility to lock in visa quotas for Indian IT and consulting firms.
According to the joint terms of reference published by USTR, the deal’s early-harvest chapter would cap — and gradually roll back — tariffs on textiles, generic drugs and critical minerals, but leaves out steel and aluminium for now. India has agreed in principle to adopt a fast-track dispute-resolution clause and to pilot a data-adequacy programme that meets forthcoming US cybersecurity guidelines. If the July deadline slips, the White House has warned that India could be re-classified outside the mooted “trusted-partner” tariff lane, exposing $14 billion of annual exports to higher duties.
The China opportunity that was
The US–China trade war offered India a brief but critical opening. From 2017 to 2023, China’s exports to the US grew at a tepid CAGR of 2.57%, weighed down by tariffs and strategic tensions. In contrast, India’s exports to the US expanded at a robust 8.67% CAGR during the same period. By 2022, India’s exports to the US stood at $82.9 billion, led by diamonds ($9.75 billion), packaged medicaments ($7.54 billion), and refined petroleum ($4.87 billion). This rise reflected not just a shift in trade flows, but India’s growing ability to fill supply chain gaps left by China.
But can this momentum continue? Trump’s return may not be as favourable as it first appears. While some opportunities remain, protectionist measures and a transactional view of alliances threaten to complicate India’s export prospects.
Scenario 1: Supply chain diversification with India as pivot
As the US seeks to counter China’s economic influence, it may deepen trade and investment ties with India—particularly in sectors like semiconductors, pharmaceuticals, and electronics. For India, this is a chance to integrate into reconfigured US-led supply chains. But challenges loom large.
Trump’s preference for imposing tariffs—even on allied nations—could hinder Indian exports. More critically, India remains heavily dependent on China for Active Pharmaceutical Ingredients (APIs). In 2020–21, 68% of India’s bulk drug imports were sourced from China. For specific APIs like paracetamol, penicillin, and streptomycin, the dependency is above 90%. Without reducing this strategic vulnerability, India’s position in global supply chains will remain fragile.
Scenario 2: Green tariffs and environmental compliance
India’s export competitiveness in energy-intensive sectors such as steel, cement, and aluminium could be undermined by the introduction of green tariffs. While Trump is unlikely to pursue environmental goals aggressively, green tariffs might still be deployed selectively—either to placate domestic constituencies or as a geopolitical tool. India’s exports could face restrictions unless they comply with evolving sustainability standards akin to the EU’s Carbon Border Adjustment Mechanism (CBAM). This could erode India’s cost advantage and threaten market access.
To remain competitive, India must accelerate its transition to cleaner production and align with international environmental norms.
Scenario 3: Tech export controls and cybersecurity crackdown
India’s tech and software services sector is vulnerable to tightening US export controls and cybersecurity requirements. With cyber threats increasingly emanating from state-linked actors—many based in China—the US may impose stricter rules for technology imports from countries with weak data protection laws. India’s cybersecurity frameworks and data protection regime, still in evolution, could become a barrier for entry into sensitive US markets.
To pre-empt this, India must operationalise its Digital Personal Data Protection Act and establish robust compliance infrastructure. Enhancing digital trust will be critical to preserving access to the US tech market.
Scenario 4: Shift towards services-led trade growth
If Trump’s protectionism discourages goods imports, the services sector may emerge as India’s saviour. India’s services exports have outpaced global averages—rising from $53 billion in 2005 to $338 billion in 2023. In 2022 alone, the US imported $25.9 billion worth of services from India, a 40% jump over the previous year.
Services—particularly IT, finance, and professional consulting—are less affected by tariff barriers and more aligned with the US’s need for global talent. As American firms look to reduce costs and scale capabilities, India could further cement its role as a services powerhouse.
Scenario 5: Regional trade blocs gain strategic weight
Trump’s disdain for multilateral trade deals is well known, but regional groupings like the Indo-Pacific Economic Framework (IPEF) may serve his objectives of isolating China while bolstering allies. For India, IPEF offers a path to influence Asia-Pacific supply chains and diversify export markets.
However, India’s nuanced ties with Russia and China may raise questions in Washington about its strategic alignment. Walking the tightrope between economic opportunity and geopolitical loyalty will be essential.
Scenario 6: A dual-track tariff regime for trusted partners
The Trump administration could unveil a dual-track tariff system, offering lower tariffs to allies and higher barriers to strategic competitors. India, given its growing security and economic engagement with the US, may be granted “trusted partner” status.
This could unlock preferential access for key Indian sectors like textiles, garments, and pharmaceuticals. But the trade-off may include distancing itself further from China—a difficult proposition given India’s continued economic reliance on its neighbour. Washington is likely to oppose any India–China collaboration that could undercut US hegemony in the Indo-Pacific.
A moment for strategic calibration
India’s trade future under Trump 2.0 is poised at a critical juncture. Opportunities abound—from deeper integration into US supply chains to dominance in services exports. Whether the BTA is wrapped up by July will determine if India capitalises on, or merely copes with, the Trump tariff reset. A signed deal would anchor supply-chain integration and lock in predictable tariff lanes; failure would leave Indian exporters negotiating from a position of uncertainty.
To survive in the new era, India must act decisively. It needs to reduce import dependence on China, particularly for APIs; invest in green manufacturing; fortify its cybersecurity and data protection laws; and institutionalise trade partnerships through frameworks like IPEF.
By aligning national policy with emerging global norms—while carefully managing its geopolitical autonomy—India can convert this period of uncertainty into an era of strategic advantage. What’s required is not just agility, but foresight. Because in the high-stakes game of global trade, the rules are changing—and only those who adapt will lead. The next 60 days, then, are not just another round of talks—they are the inflection point that will tell us if India can translate diplomatic urgency into durable trade advantage.
Jadhav Chakradhar is Assistant Professor, Centre for Economic and Social Studies (CESS), Hyderabad. Kaibalyapati Mishra is Senior Research Fellow, Centre for Economic Studies and Policy, Institute for Social and Economic Change (ISEC), Bangalore.