Trouble ahead? Zoho's Sridhar Vembu warns of inflation as US demands balance in bilateral trade

Zoho founder Sridhar Vembu has warned that India could face economic trouble as the US pushes for balanced bilateral trade and threatens reciprocal tariffs. “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,” Vembu said. He added that India will soon need to import “more iPhones, GPUs, LPG, nuclear plants, fighter jets, whiskey, and so on from America to balance the bilateral trade.” This adjustment could put pressure on India’s current account deficit unless domestic production ramps up quickly.

“Since this cannot happen overnight, in the short run, imported consumer goods prices could go up—that shows up as inflation. Indian manufacturers have to step up and set up capacity and acquire the know-how when needed,” Vembu said.

India’s trade surplus with the US has grown significantly since the pandemic, doubling from $17.30 billion in 2019-20 to $35.33 billion in 2023-24. This shift has been accompanied by a notable change in the export basket.

However, India’s trade deficit with China reached $85.1 billion in the fiscal year 2024, with Chinese imports increasing 9.8% 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.

US President Donald Trump has highlighted the trade imbalance between the two nations. “America will charge a RECIPROCAL Tariff, meaning, whatever countries charge the United States of America, we will charge them—No more, no less!” Trump announced in a post on Saturday.

During a press briefing earlier this week, Trump also pointed out India’s high tariff rates on several US goods. “India imposes a 30, 40, 60, and even 70 per cent tariff on so many goods, and in some cases, far more than that. A 70 per cent tariff on US cars going into India makes it pretty much impossible to sell those cars.”

“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,” Trump added. “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.”