Trump’s tariffs should spur Indo-Japan convergence

Similar to U.S. President Donald Trump’s threatened 25% tariffs on Japanese imports, his 50% tariffs on Indian imports, which took effect on Wednesday, will likely come down as U.S.-India trade negotiations progress.

Nevertheless, the Trump tariffs, and the substantial hit Indian manufacturing will take as a result, provide an opportunity for India to “pivot” toward Asia — to borrow a phrase from former U.S. President Barack Obama — and away from its overreliance on the U.S. as its most important export market.

Trump’s tariffs come at a time when Indian exports to the U.S. are growing rapidly, comprising 18% of all exports and 2.2% of the nation’s gross domestic product. Historically, India has never been a treaty ally of the U.S., but it has maintained a strong relationship with America. New Delhi’s ties with Washington became especially close during the presidencies of George W. Bush and Barack Obama, and they remained strong during Trump’s first term and continued under Joe Biden.

However, trust in the U.S. has sharply declined since Trump’s second term began in January, casting a long shadow over the bilateral relationship. India’s longstanding policy of multialignment conflicts with Trump’s transactional approach to geopolitics. Trump 2.0’s massive tariffs as punishment for New Delhi's purchases of Russian oil has also disrupted America’s approach of strategic altruism toward India as a much-needed bulwark against China in the Indo-Pacific.

Trump’s more aggressive stance toward traditional allies like Japan and India risks damaging decades of U.S. foreign policy in the Indo-Pacific. But it also provides a prospect for Indo-Pacific nations — India and Japan chief among them — to form stronger strategic and economic ties. Indeed, India’s political and business leaders should use this opportunity to evolve into a strategic economic partner for Japan, increasing bilateral trade, enhancing supply-chain cooperation and encouraging long-term investments.

India's trade landscape is characterized by its heavy dependence on the U.S. for exports, which were valued at $77.5 billion for fiscal year 2024 and growing annually at a rate of more than 10%. Clearly, this overreliance should be seen as a vulnerability. New Delhi needs a strategy that does not rely solely on export growth to the U.S. market. The Asian market, with its vast untapped potential and trade involving electronics, automotive components and agricultural products offers a more stable growth path for India.

However, a pivot toward Asia will require India to smoothly adjust its production and export structures to meet Asian demand. India needs to restructure its industrial sector by increasing investment in research and development of products tailored to Asian market needs. This involves not only boosting production capacity but also restructuring supply chains, optimizing trade policies and strengthening companies' ability to adapt to new markets.

During this period of churn and uncertainty, some cautious rebalancing is already occurring in the Indo-Pacific region. Japanese markets have become especially critical in the manufacturing and technology sectors. In turn, Japanese manufacturing companies are increasing their investments in India, attracted by its rapidly growing economy and strong domestic demand.

More specifically, Honda Motor plans to add a production line at its motorcycle plant in Vithalapur, southwestern India, with an investment of about ¥16.1 billion. Honda has three other factories in India and aims to increase its production capacity in the country to 7 million units annually by 2027, which is over a 10% increase from the current level. Suzuki Motor started operations at its fourth vehicle assembly plant in India in February. Daikin Industries plans to begin operations at a new air conditioner factory by 2030.

According to the Indian Commerce and Industry Ministry, foreign direct investment in India rose by 28% year-on-year to $53.1 billion (about ¥7.8 trillion) in 2024. In addition, the Indian government has introduced several targeted initiatives, such as the Production Linked Incentive program, to expand domestic production and enhance supply-chain integration to increase exports in sectors like electronics, pharmaceuticals and automobiles. A key result is the jump in mobile phone exports from India — from almost none in 2016 to $20.4 billion in 2024, including a 44% year-on-year rise.

At the same time, the Indian government’s National Policy on Electronics, established in 2019 to position the country as a global electronics hub, has promoted the development of core components, including semiconductor chips, graphics chips and other computing devices. In this context, Japan's advanced manufacturing complements India's labor force, consumer market, low costs and connections to major international markets.

Amid this shifting trade environment, India has intensified its engagement in bilateral and multilateral trade negotiations. It is becoming a more attractive manufacturing partner — a trend indicated by Nomura, which sees India benefiting from trade diversion and supply-chain shifts. It also uses a trilateral framework with Japan and Taiwan to diversify its supply chains.

Indo-Japan cooperation already under way — most notably through the two countries’ Comprehensive Economic Partnership Agreement, Supply Chain Resilience Initiative and semiconductor ties — can help mitigate Trump’s tariffs by diversifying supply chains away from the U.S. market.

No matter how the U.S-India trade dispute is resolved, India is poised to become a reliable long-term partner for Japan, leveraging its youthful demographic, institutional reforms, infrastructure, growing geopolitical stature and global partnerships to anchor resilient supply chains with global reach.