India Needs to Think Anew on its Trade Relations and Strategies

By Suryavanshi IAS

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Introduction

India’s economy is at a crossroads. On August 7, 2025, the U.S. imposed a 25% tariff on Indian seafood exports, with a threat of raising it to 50% by August 27. This move impacts millions — the seafood industry alone supports 28 million people, while textiles and fisheries combined support over 135 million livelihoods.

At the heart of this issue lies a bigger question for India’s policymakers and UPSC aspirants: How should India refashion its trade strategy in a world of protectionism, geopolitical rivalries, and slowing globalization?

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The Challenge of U.S. Tariffs

• U.S. as a critical market: Accounts for nearly one-third of India’s apparel and seafood exports.

• MSME vulnerability: MSMEs contribute ~45.79% of India’s total exports (FY25) and employ 28 crore people.

• Sectors at risk:

  • Seafood industry → demands 240-day moratorium on export credit repayment.

  • Textiles & Gems-Jewellery → want interest subvention.

• Government’s stance: No direct subsidies, but exploring Export Promotion Mission (EPM) tweaks (₹2,250 crore outlay in FY25).

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Geopolitical Angle: U.S. Relations at a Low Point

• Despite Modi–Trump bonhomie, bilateral trade negotiations are deadlocked.

• Current ties have arguably dipped below even Cold War levels, given the dense economic and cultural interlinkages today.

• The U.S.’s stance reflects a protectionist turn — “reciprocal tariffs” announced in April 2025.

• Lesson: Over-reliance on one major economy is a strategic vulnerability.

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Need for Diversification

1. Regional and Neighbourhood Trade:

   • Revisit and refashion trade ties with China, ASEAN, SAARC neighbours.

   • China, despite being a competitor, remains a crucial part of global supply chains.

2. New Export Strategies:

   • Strengthen EPM by integrating Textiles and Fisheries Ministries.

   • Provide cheaper export credit and insurance against payment risks.

   • Encourage MSMEs to expand into African, Latin American, and Middle-Eastern markets.

3. Learning from Global Dependence:

   • EU’s reliance on Russian oil and global dependence on Chinese rare earths show that supply chains can’t be undone overnight.

   • India must simultaneously diversify and insulate its supply chains.

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Way Forward for Policy Makers

• Short-term: Extend moratoriums, enhance export credit availability, and provide targeted interest subvention (without breaching WTO rules).

• Medium-term: Build new trade partnerships with ASEAN, Africa, Latin America.

• Long-term: Reduce over-dependence on U.S. by strengthening Make in India, PLI schemes, and Atmanirbhar Bharat initiatives.

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UPSC Relevance

This issue is highly relevant for GS Paper II (IR), GS Paper III (Economy), and Essay Paper. It demands:

• Awareness of trade policy shifts.

• Understanding of MSME sector challenges.

• Linking geopolitics with economics.

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Previous Year UPSC Questions for Practice

GS Paper III (Economy & Internal Security):

1. How would the recent phenomena of protectionism and unilateralism in world trade affect India’s economic interests? (UPSC Mains 2018)

2. What are the key areas of reform if the WTO has to survive in the present context of ‘Trade War’, especially keeping in mind the interest of India? (UPSC Mains 2018)

3. The US withdrawal from the Trans-Pacific Partnership (TPP) has raised new challenges for multilateral trade negotiations. Examine its implications for India’s trade strategy. (UPSC Mains 2017)

4. The MSME sector forms the backbone of India’s exports. Discuss the challenges faced by MSMEs in global trade and suggest measures to strengthen their competitiveness. (Adapted from UPSC 2020 trends)

GS Paper II (International Relations):
5. “In the context of contemporary geo-economics, India must recalibrate its trade policy by balancing relations with both the U.S. and China.” Critically examine. (Model question)

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Conclusion

India cannot afford complacency in trade. The U.S. tariffs on seafood and textiles are not just an economic challenge but a strategic wake-up call. India must diversify markets, strengthen MSMEs, and recalibrate trade relations with neighbours including China, while simultaneously pushing for a more resilient domestic manufacturing base.