Context

• U.S. (Trump administration, 2025) imposed 50% tariffs on imports from India, including penalties on oil trade with Russia.
• India faces loss of competitiveness compared to rivals like Vietnam, Bangladesh.
• Despite challenges, India’s demographic dividend (youth bulge) is a strategic advantage.

1. Why U.S. Tariffs Hurt India

• Export dependence: India’s forex earnings rely on exports to the U.S. (textiles, pharma, software).
• Competitiveness loss:
  • Shirt from India ($10) → costs $15 in U.S. post-tariff.
  • Shirt from Vietnam/Bangladesh ($12).
• Short-term impact:
  • Job & income losses in export sectors.
  • U.S. demands more market access (esp. dairy) in India → threat to Indian farmers.

2. China Factor

• U.S. tariffs on China reduced to 30% after cooling tensions.
• China retains an edge due to:
  • Scale of production.
  • Strong infrastructure.
  • Tech dominance (36.3% share in global textiles, 24.9% in machinery & electricals vs. India’s 4.4% & 0.9%).
• China’s control over rare earths + role in supply chains → U.S. cautious not to push China too far.

3. Why India Cannot Rely Only on Low Wages

• Low-cost labour → not sustainable.
• Without R&D, tech capacity, innovation, India risks being pushed aside by cheaper suppliers.
• IT & pharma industry → under-investing in research → remain low-value.

4. From Export Dependence → Domestic Demand

• Global trends:
  • Ageing West + inequality → weak consumer demand.
  • Tariffs & protectionism → shrinking markets.
• India’s path forward:
  • Boost domestic demand (home market as growth engine).
  • Young population → consumers + producers simultaneously.
  • Wage & income growth must support consumption.

5. India’s Youth Advantage

• Demographics: 1 in 5 young people globally is Indian.
• Youth (15–29 years) in schools/colleges ≈ 120 million (equal to Japan’s population).
• Skilled migration record:
  • IIT graduates, doctors, engineers have transformed U.S. tech & innovation sectors.
  • Indian immigrants = 1% of U.S. population but over-represented in R&D, academia, corporate leadership.
  • “Brain circulation” → India indirectly powers U.S. tech dominance.
• Policy lesson: If U.S. blocks Indian youth (via visas), it loses strategically.

6. Policy Options for India

• Short-term:
  • Diplomatic engagement with U.S. (tariff rollback, farmer safeguards).
  • Diversify export markets (ASEAN, EU, Africa).
• Long-term:
  • Invest in R&D, innovation, tech-intensive industries.
  • Strengthen domestic consumption by raising wages & employment.
  • Greater spending on health & education → skill up youth.
  • Encourage entrepreneurship & MSMEs in knowledge economy.

Prelims Practice

Q. Consider the following statements about India’s youth and trade challenges:

1. India has the largest share of young population in the world.
2. U.S. tariffs on Indian goods in 2025 are higher than those on Chinese goods.
3. India’s share in global machinery and electrical equipment exports is higher than China’s.

Which of the above are correct?

• (a) 1 only
• (b) 1 and 2 only
• (c) 2 and 3 only
• (d) 1, 2 and 3

One-line takeaway for UPSC notes India’s true defence against U.S. tariffs is not cheaper goods, but its youth power driving innovation, domestic demand, and long-term strategic value.