India’s relationship with the US in terms of IT has long been symbiotic. The largest share of India’s trade surplus with the US comes from IT services exports, and American tech companies view India as a high-potential market. This mutual dependence now faces an uncertain future because of US President Donald Trump’s aggressive tariffs on merchandise imports and the undercurrents of global recessionary headwinds linked to it. We must remain alert to the possible disruption in our IT exports, despite Washington’s current focus on the goods markets.
A key dimension of Trump’s tariffs is the indirect but potentially very large shock they may produce for all parts of the global economy — and by extension, Indian IT. Trump’s tariffs are likely to suppress consumer demand in the US, because they will make most things costlier, at least in the medium run. Trump has called upon the Federal Reserve to lower rates in order to make borrowing cheaper, hoping to bolster consumer spending. However, Federal Reserve chair Jerome Powell has signalled resistance, underscoring that central banking independence remains a cornerstone of institutional maturity in the US economy.
Rising inflation could mean that Americans — businesses included — must tighten their belts. For Indian IT, reduced US consumption would translate to delayed digital transformation projects and cost-cutting by enterprise clients. This should prompt our IT industry to re-evaluate its cost-arbitrage model and ask how we can move higher up the value chain. The growing role of Artificial Intelligence (AI) and advanced software threatens to disrupt low-end IT services, so Indian industry must pivot toward creating more resilient IT services and know-how. The time for moving up the engineering ladder is now.
American companies could also come under greater political pressure to onshore IT jobs rather than send them offshore. India’s booming Global Capability Centres (GCCs) illustrate the growing depth of our value proposition to US corporations. These centres are increasingly involved in R&D and value-added tasks. They showcase a shift from back-office tasks toward complex, analytical ones, fuelled in large part by enterprise demand from the US.
Yet the momentum behind American offshoring to India could stall if protectionist sentiment runs high. We must do more than offer cheap land and electricity for GCCs, and think of incentives to ensure US companies remain committed over the long haul. Linking market access or government procurement to job creation and skill development might be a pragmatic path. If the government were to tie such incentives to hiring targets, firms would be motivated to build enduring ecosystems here. Avenues for business expansion would also give American companies greater impetus to make India’s case back home.
Perhaps the bigger concern is how Trump’s tariffs will fuel calls for digital sovereignty around the world, and the impact this will have on Indian IT exports. Europe, for instance, is accelerating work on its own Digital Stack to reduce reliance on American tech, and has previously (unsuccessfully) used hawkish antitrust laws and specialised digital regulation as leverage to do so. While Europe’s protective instincts may be aimed at American and even Chinese tech giants, they offer no cause for celebration for Indian IT that also seeks to service European demand.
The US, on the other hand, has always assumed that partner growth markets like India would remain open to its tech juggernaut. Indeed, India has not erected impenetrable firewalls yet. American firms such as Google, Facebook, and Amazon enjoy broad access to India. But as each market reacts to changing global conditions, India could also be tempted to deepen trade barriers like data localisation, security testing, and content controls.
This is where Trump’s overtures might paradoxically be good news for India. His administration seems intent on forging a bilateral trade deal, potentially bypassing the complexities of broader multilateral negotiations. If Europe grows more insular, India and the US could strike a reciprocal arrangement that not only safeguards the existing flow of IT services, but also opens fresh tech market frontiers. Indian companies should, in turn, look to serve American consumers more actively with their own apps and services.
The challenge before India, then, is twofold. First, keep an eye on near-term threats: recessionary headwinds, supply chain uncertainty, and onshoring pressures that may erode service exports. Second, proactively reinforce our longer-term value proposition:a pool of highly skilled talent, an innovative tech ecosystem that goes beyond cost advantages, and a large, rule-of-law-driven domestic market that American companies find appealing. If we play our cards right, we can weather this storm. Trump’s tariffs, though undesirable, may well force us to elevate our capabilities and improve the domestic business environment.
Vivan Sharan is partner, Koan Advisory Group, New Delhi. The views expressed are personal
