China Plus One, Lower Duties, More Defence Deals: Nomura On How India Plans To Navigate Trump Tariffs

India is preparing to navigate through the potential US tariffs by focussing on 'China plus one' strategy, opening the gates for increased foreign investment in sectors like insurance, lowering import duties, and inking more defence deals with the United States, Nomura suggested in a note on Tuesday.

In February, US President Donald Trump had tasked his administration to plan reciprocal tariffs on "countries like India and China". This was also reiterated by Trump following his meeting with Indian Prime Minister Narendra Modi last month.

The tariffs spell concern for India, as the country has a significant trade surplus with the US. Exports to the country accounted for 2.2% of India's gross domestic product in 2024, according to Nomura.

The US' total goods imports from India totaled $87.4 billion in 2024, up 4.5% from 2023, as per the data available with US government. The goods trade deficit with India was at $45.7 billion in 2024, a 5.4% increase over 2023, the website of the Office of United States Trade Representative shows.

Nomura stated that Trump's tariffs are centered around trade imbalances, reciprocal and sectoral tariffs, as well as potential punitive measures on third countries that are used for tariff circumvention. While China is at the centre of the potential tariff action, the rest of Asia is "also at risk".

Nomura listed out the five broad strategies which India is seemingly adopting to avert the impact of the potential Trump tariffs. Here's a look:

Lower Duties

The Indian government is aiming to clinch a broader trade and investment deal with the US, with India prepared to "offer tariff cuts on some products", such as pork, high-end medical devices, and luxury motorcycles. It is also looking to offer the US significant concessions including production-linked incentives for shipping and support for logistics companies, Nomura said.

In the recently presented Union Budget, India slashed the import duty on luxury cars priced above $40,000 to 70% from 125% earlier. Similarly, the custom duty on bourbon whiskey was cut to 50% from 150%. Both the moves are set to benefit US-based suppliers.

Defence Deals

The brokerage is of the view that India is looking to "import more defence equipment" from the US. This was indicated when Trump, following his meeting with Modi last month, said his administration is "paving the way" for the sale of F-35 stealth fighter jets.

In addition to defence deals, India will also look to import more of "aircraft, oil and gas, technology, and medical and diagnostic equipment" from the US, the brokerage added.

China + 1

The Indian government is likely to pitch the country as an "alternative manufacturing base to China", by offering more incentives such as tax cuts and land access in states like Andhra Pradesh, Gujarat and Tamil Nadu, in industries such as "semiconductors, electronics, aircraft parts, and renewables", Nomura said.

'China+1' refers to the business strategy to reduce reliance on China and diversify manufacturing into other markets. The strategy could be widely adopted if proceeds with the plan to slap up to 60% tariffs on Chinese imports, business leaders said at the recent World Economic Forum in Davos, adding that India is poised to benefit in such a scenario.

Integration Into US Global Supply Chain

India is also seeking to "integrate into US global supply chains by extending concessions for US companies that use India as a hub for manufacturing low-end or intermediate products", according to Nomura. These kind of products include low-end chips, solar panels, machinery, and pharmaceuticals, it added.

100% FDI In Insurance

The country is planning to allow 100% foreign direct investment in the insurance sector, up from the current 74%, which could help leading US insurers like AIG, as per Nomura.

The government last month indicated that 100% FDI in insurance sector could be soon rolled out. The internal government consultations in this regard are almost complete, Department of Financial Services Secretary Nagaraju Maddirala said during a press briefing on Feb. 17.