Inflation Ahead? Zoho Founder Sridhar Vembu's Big Warning As Trump Demands Reciprocal Trade

India may witness some economic hardships amid US President Donald Trump's push for balancing bilateral trade with threats of reciprocal tariffs, warned Zoho founder Sridhar Vembu. He pointed out that amid Mr Trump's threats, India will soon need to increase its imports from America to balance the bilateral trade, which could put pressure on New Delhi's current account deficit unless domestic production ramps up quickly.

"As a slightly oversimplified mental model, India exports software services to America and imports consumer goods from China. The surplus with America is more than matched by the deficit with China," Mr Vembu said in a pot on X.

"Now India will (have to) import more iPhones, GPUs, LPG, nuclear plants, fighter jets, whiskey and so on from America to balance the bilateral trade," he added.

He noted that this adjustment could put pressure on India's current account deficit unless domestic production is ramped up quickly.

"In order not to blow up the current account deficit, India has to find ways to reduce consumer goods imports from China, and that means increasing domestic production. Since this cannot happen overnight, in the short run imported consumer goods prices could go up - that shows up as inflation," he said, adding that Indian manufacturers have to step up and set up capacity and "acquire the know-how when needed."

As a slightly oversimplified mental model, India exports software services to America and imports consumer goods from China. The surplus with America is more than matched by the deficit with China.

Now India will (have to) import more iPhones, GPUs, LPG, nuclear plants, fighter…

— Sridhar Vembu (@svembu) February 15, 2025

India's Trade With US And China

Since the Covid-19 pandemic, India's trade surplus with the US has doubled, growing from $17.30 billion in 2019-20 to $35.33 billion in 2023-24, alongside a notable shift in the export basket. While exports of electronic and engineering goods surged, traditional exports such as gems, jewellery and garments remained largely unchanged.

At the same time, India's trade deficit with China has hit $85.1 billion in the fiscal year 2024, with imports from Beijing witnessing a 9.8 per cent rise year-on-year between April and October 2024. China remains India's top import source, with imports valued at $65.89 billion during that period.

The numbers underscore a growing economic concern, as exports to China fell to just $8 billion during this period.

Trump's Threats

Mr Trump on Saturday warned that "America will charge a RECIPROCAL Tariff, meaning, whatever countries charge the United States of America, we will charge them- No more, no less!"

Earlier on Friday, highlighting the trade imbalance between Washington and New Delhi, the US President said that Indian tariffs as high as 70 per cent on American goods such as cars are a "big problem". He pointed out that US sales of oil and gas will bridge the American trade deficit with India.

"India imposes a 30, 40, 60 and even 70 per cent tariff on so many goods, and in some cases, far more than that. As an example, a 70 per cent tariff on US cars going into India makes it pretty much impossible to sell those cars. Today, the US trade deficit with India is almost $100 billion, and Prime Minister Modi and I have agreed that we will be negotiating to address the long-running disparities," he said at a press briefing with Prime Minister Narendra Modi.

"We want a certain level playing field, which we really think we're entitled to, and he does also, in fairness. So we're going to work on that very hard, and we can make up the difference very easily with the deficit, with the sale of oil and gas, LNG, of which we have more than anybody in the world," Mr Trump added.