Reading time : 3 minutes
- By: Dr Jitender Bhandari & Dr Shivani Chaudhry
As Prime Minister Modi concludes a high-profile 5-nation tour to Ghana, Trinidad & Tobago, Argentina, Brazil, and Namibia, and also participated in the 17th BRICS Summit in Brazil, these visits assume heightened strategic significance given the timing of these visits. Beneath the facade of diplomacy lies a deeper recalibration of India’s external trade strategy. In response to rising concerns about the resurgence of U.S. tariff nationalism, manifested through Donald Trump’s tariff tantrum to the whole world, irrespective of the logic of international trade, India is also on the firing line and negotiating hard to get a favorable trade deal with the US. Amidst these uncertain times, India appears to be pursuing an active trade diversification strategy aimed at mitigating its exposure to concentrated trade risks.
The U.S. Trade Risk Factor
U.S. total goods trade with India was an estimated $129.2 billion in 2024. U.S. goods exports to India in 2024 were $41.8 billion, up 3.4 percent ($1.4 billion) from 2023. U.S. goods imports from India totaled $87.4 billion in 2024, up 4.5 percent ($3.7 billion) from 2023. The U.S. goods trade deficit with India was $45.7 billion in 2024, a 5.4 percent increase ($2.4 billion) over 2023. This surplus, however, has created controversy in US trade circles, especially since Mr. Trump has assumed office. In 2019, the Trump administration revoked India’s Generalized System of Preferences (GSP) status, impacting roughly $5.6 billion worth of Indian exports.
Trump’s tariff policy signals a broader shift towards unilateral trade action and tariff escalation, particularly targeting those economies that enjoy trade surpluses relative to the United States. The current US trade policy is devoid of any trade logic and purely based on an age-old mercantilist idea of international trade. The Trump administration has already coerced many nations into signing new trade deals. India is also on the verge of signing a mini-trade agreement, if not a comprehensive one.
Strategic Trade Diversification in Action
Against this backdrop, India’s current diplomatic engagements demonstrate a deliberate trade diversification strategy designed to mitigate over-reliance on a single market or bloc. This approach is rooted in the fundamental principle of minimizing trade concentration risk and achieving more favorable trade terms through an expanded network of partnerships.
Countries included in the Prime Minister’s itinerary—several of which are situated in Africa and Latin America—represent high-growth regions. These economies are characterized by both commodity abundance and an import-intensive nature. India’s growing engagement with these economies transcends mere symbolism; it is in sync with its recent surge in trade negotiations and preferential trade agreements (PTAs). For instance, the India-UAE Comprehensive Economic Partnership Agreement (CEPA), signed in 2022, has already increased bilateral trade by 15% annually. The India-Australia Economic Cooperation and Trade Agreement (ECTA), which commenced in late 2022, has resulted in the reduction of tariffs on nearly 96% of Indian exports. We are hopefully in the final stage of negotiations with the European Union. We have just signed a trade agreement with the United Kingdom.
The BRICS Pivot and South-South Trade
The BRICS summit presents an important multilateral platform for India to enhance its South-South trade connections. Intra-BRICS trade amounted to $422 billion in 2023. The BRICS now includes new members like Saudi Arabia, Egypt, United Arab Emirates, Ethiopia, Indonesia, and Iran. The BRICS partner countries are: Belarus, Bolivia, Cuba, Kazakhstan, Malaysia, Nigeria, Thailand, Uganda, and Uzbekistan. In its capacity as pro tempore BRICS Chair, the Government of Brazil announces the formal admission of Vietnam as a partner country of the group. Vietnam becomes the tenth BRICS partner country. The bloc’s combined gross domestic product now surpasses 30% of global output (PPP terms), and its share in global trade is projected to increase. BRICS countries have shown their willingness to challenge the dollar-centric trade regime. There is growing discourse regarding the settlement of trade in local currencies (e.g., INR, yuan, ruble), the development of regional value chains, and the creation of alternative payment systems to SWIFT. These initiatives could lead to a substantial reduction in trade transaction costs, improve currency risk management, and enhance our export competitiveness. However, Mr. Trump has already threatened BRICS countries against the adoption of these initiatives, with additional tariff duties on BRICS nations.
Looking Ahead: A Strategic Hedging
India’s trade policy seems to be following a “strategic hedging” framework, which means keeping important trading ties with Western markets while also actively looking for new export markets and geography to source goods. This strategy fits well with India’s overall goals under the Foreign Trade Policy 2023, which aims to raise India’s exports of goods and services to $2 trillion by 2030. It will do this by moving from commodity-driven exports to value-added and high-tech trade. The Prime Minister’s ongoing visits and India’s role in BRICS show that India is moving towards a more equitable, rules-based, and multipolar trade order.
Conclusion
As geopolitical rivalries and nationalist trade policies may cause the global economic order to collapse, India is putting itself in a position to actively create new trade alliances rather than function as a passive player. Beyond mere goodwill, the prime minister’s current diplomatic efforts reveal a more comprehensive plan to reduce trade basket risks, especially with the USA, recalibrating important trade deals such as with the UK and EU, demonstrating increased participation in South-South trade, and maintaining India’s competitiveness in a world economy that is becoming more unpredictable.
(Dr Bhandari & Dr Chaudhry are the Associate Professor Economics , School of Social Sciences, CHRIST University, Delhi NCR)
Very well written