US tariffs present India opportunities to develop relations with climate-aligned nations

Creating robust, green industries could help India become export hub for products like biofuels, solar panels, green steel and electronics

US President Donald Trump’s decision to impose 50% tariffs on goods being imported from India has set off alarm bells. While calls for boycotting American brands such as McDonalds and Coca-Cola are being raised in India, the ripple effect of Trump’s tariffs have both short and long-term impacts on trade and decarbonisation goals.

In a webinar hosted by Climate Trends titled ‘Tariffs, Transitions, and Tensions: The Future of Decarbonisation in India’, eminent speakers discussed the possible fallouts and solutions for India as its ties with the US has been strained.

“We are in a situation of uncertainty because Trump’s policies are erratic and unpredictable. Trump’s policies shook Europe and it is thinking of how to be more independent, especially regarding defence and trade. Europe has started looking for allies, and there’s no more obvious ally than India,” said Julian Popov, former Minister of Environment and Water, Bulgaria.

India has a tightrope to walk on. “India was really strengthening its ties with the US. Indian imports do not affect the US as much as imports from countries like Mexico and China, Canada, where the US has backed down on tariffs. So, India needs to focus on negotiations till the August 27 deadline,” said panelist Bentley Allan, assistant professor of political science at The Johns Hopkins University.

Clean future can be saviour

Allan said India’s focus on growing clean energy and biofuels will be helpful, as importing fossil fuels from Russia is obviously hitting India.

His reasons are logical. “India has an electronics industry base, which can create a supply chain for the solar panel industry. Agriculture, another strong Indian industry, can feed into the biofuels industry, and create global value chains,” said Allan.

According to him, as India needs to look towards other countries to sell its goods, solar panels and steel can play an important role in strengthening its relationship with the EU, Japan and Korea.

The EU, especially, seems like a natural ally as its climate concerns are aligned with India’s, according to Aruna Sharma, a development economist. “As far as climate commitment is concerned, India’s policies of late have not diluted them due to trade upheavals. Tariffs are going to hit in a big way, especially textiles. There is definitely a scope to develop alternate markets. Europe is a good prospect,” she said.

However, India needs to focus on more sustainable processes of manufacturing. Sharma took the example of how India’s textile exports tried becoming more green, and said that the mining, processing and usage of coal should adapt to become less harmful to the environment. 

Developing greener industries

However, there’s a caveat when it comes to strengthening relations with Europe, as the CBAM (Carbon Border Adjustment Mechanism) comes into play next year. CBAM — a tariff on carbon intensive products — will hit Indian exports like steel and aluminium, which are very polluting products, according to Ajay Srivastava, from the Global Trade Research Initiative.

“Will India resort to two separate steel production processes — one for Europe and one for the rest of the world? Big players will do this and produce in a green manner, but others will pay the tax and be eventually outpriced,” he said.

Then again, CBAM presents an opportunity for Indian firms to invest in clean technologies that will give advantage in the long term, according to Allan. 

Popov suggested an alternative as well to deal with CBAM. “Developing zero or low carbon industrial zones — clusters supplied with green energy, and logistical support for trade in zero carbon products — would be helpful. This would be a strategically positive way to avoid CBAM tax, and also to position the industry for trade with any country or company that has net zero targets. India has a very good opportunity to develop this concept,” he said.

Realistically, the US tariffs are likely to hit India in the short term. But on a larger scale, this is also an opportunity to develop relationships with other countries as well as create robust, green industries, the experts concluded.

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Shaswata Kundu Chaudhuri

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