India-US Tech Trade: Redefining partnerships in post-election era

With AI and other emerging technologies impacting all economic growth sectors, the free movement of skills, data, and technology has become a non-negotiable essential. This is especially important from the India-US perspective, as the current geopolitical polarization has prompted them to declare themselves as trusted partners. However, in a post-Trump and Modi 3.0 scenario, there are signs of growing protectionist trends on both sides. These barriers to free trade could take the form of increased tariffs, restrictions on the entry of skilled professionals, making it costlier for companies to recruit foreign talent, or limiting the movement of data and technology across international boundaries.

A Strengthening Partnership in Numbers

The total value of India-US trade has already increased more than fivefold between 2005 and 2023, with the technology sector as a prime driver of bilateral opportunities. During the 2015 Leaders' Summit, President Obama and Prime Minister Modi committed to facilitating actions necessary to increase bilateral trade from $100 billion to $500 billion. In the Summit, it was understood that India’s trade partnership was key to their mutual economic stability, aiding their national security.

Indian IT’s Crucial Role in US Business Success

The US is the largest market for the Indian IT industry, and Indian companies have helped meet the growing needs of American businesses for high-skilled IT solutions, enabling them to innovate, expand to new markets, and widen operations. More than 80% percent of IT export revenue is a result of its trade with the US. This has not only created overseas opportunities for Indians but has also boosted employment for US natives. Indian and American companies also partner to address markets globally.

Collaborative Success: TCS and Google Cloud

A widely known example of such a partnership is TCS (Tata Consultancy Services) and Google Cloud, which collaborate to deliver innovative solutions in the areas of machine learning, advanced analytics, and the Internet of Things (IoT). They offer solutions across sectors like finance, healthcare, and manufacturing, helping companies around the world optimize processes and enter new markets with digital-first strategies. American tech companies also have a strong foothold in the fast-growing Indian market, and opportunities will continue to expand as India's economy grows, internet penetration increases, and other economic sectors increasingly adopt information technology.

US Immigration Policies and the Role of STEM Talent

The US government has long recognized the mutual benefits of attracting foreign STEM talent and has balanced permanent and temporary immigration policies with efforts to boost domestic STEM education, allowing American businesses access to skilled IT professionals, many from India, through H-1B and L-1 visas. Economists Giovanni Peri (UC Davis), Kevin Shih (RPI), and Chad Sparber (Colgate University) found that, when examined on a national scale, the influx of foreign STEM workers accounted for an estimated 30% to 50% of the overall productivity growth in the United States from 1990 to 2010.

The “Buy American, Hire American” Policy and Its Impact

However, during the campaign for the current elections, immigration was a contentious issue, raising concerns about potential changes to immigration laws that might limit the hiring of software engineers in the US. In his previous tenure, this inclination was evident in Trump’s “Buy American, Hire American” policy, signed into action in 2017, that aimed to protect the rights of US workers by making immigrant laws more stringent.

Tariff Wars: High Taxes and Trade Tensions

Additionally, Trump's commitment to curb outsourcing and his criticism of India's high tariffs on American exports could lead to retaliatory measures as he takes office again. Last year, Trump pointed to the high taxes imposed by India on Harley-Davidson motorcycles imported from the US as a representation of the unfavorable trading conditions and threatened to impose heavy taxes in response. This, along with his stance on immigration, could detrimentally impact India's IT services industry, which relies heavily on the US market for job creation, consumer market, and the inflow of the latest tech practices and innovation.

The US-India iCET Initiative and Defense Collaboration

Further, in May 2022, President Biden and Prime Minister Modi launched the US-India Initiative on Critical and Emerging Technology (ICT) to strengthen strategic partnerships and advance defense and technology cooperation between India and the US across government, businesses, and academia. iCET focuses on building robust innovation ecosystems and fostering collaboration in critical areas such as space, next-generation telecommunications, and defense technology. Its central objective is to establish a resilient semiconductor supply chain through enhanced bilateral efforts in semiconductor design, manufacturing, and workforce development, as well as encouraging joint ventures and technology partnerships within India.

A Semiconductor Fabrication Milestone

During Prime Minister Modi’s September visit to the US, a landmark agreement was also signed to establish a semiconductor fabrication plant in India. Supported by the India Semiconductor Mission and in partnership with Bharat Semi, 3rdiTech, and the US Space Force, the facility will specialize in producing infrared, gallium nitride, and silicon carbide semiconductors for applications in national security, next-gen telecommunications, and green energy.

Protectionist Policies and Potential Barriers for India

The Trump government aligns with the ideology that emphasizes reducing domestic costs (through tax cuts) while raising costs for foreign players (via tariffs and restrictive policies), which could reshape the CHIPS Act. Given this "America First" approach and his commitment to reform the CHIPS and Science Act to favor US businesses, some experts have expressed concerns about the future of US-India collaboration, especially if India does not fully align with the incoming president’s stance on China.

Navigating the “China Factor” and India’s Strategic Stance

The Indian government's approach to supporting American interests regarding China is likely to influence the strategic direction of the iCET partnership. This issue could present a challenge for Modi 3.0. A reciprocal measure to revise India’s Production-linked Incentive (PLI) scheme to boost innovation-led domestic production, reduce foreign dependency, and restrict American companies’ access to subsidies in lieu of investment in manufacturing cannot be ruled out.

Immigration and Visa Concerns for Indian Professionals

Therefore, the Trump government taking office has the potential to create pressure on India to align more closely with US geopolitical stances. Trump's protectionist policies could lead to fewer job opportunities for Indian immigrants due to tighter visa and immigration restrictions aimed at prioritizing American workers, especially in high-skilled sectors. Additionally, higher tariffs on imports, including sectors like automobiles and IT goods and services, could hurt Indian exports to the US, impacting revenue and market share for Indian companies.

The iCET Agreement and India’s Role in the Supply Chain

This protectionist stance also threatens the India-US iCET agreement, a cornerstone of their technology and defense cooperation, as Trump’s preference for domestic manufacturing may limit foreign involvement in critical sectors such as semiconductors. However, the situation may not be as bleak as it appears at first glance. The "China factor" will shield India from some of these policies, as the US increasingly sees India as a strategic counterbalance to China. Moreover, while India may have to face some heat from an immigration and trading standpoint, it may be able to gain a stronghold on the global supply chain.

“China Plus One” Strategy: Opportunities for Indian Manufacturing

The Trump administration is likely to further the “China plus one” strategy which aims to diversify production away from China. With Foxconn already beginning efforts to establish a “Foxconn city” similar to that in China and Taiwan within this business strategy, this initiative can help attract manufacturing and investments into the country.

A Balanced Strategy for India’s Tech Relations with the US

While the rise of the Trump administration calls for caution in India’s tech relations with the US, it also presents potential benefits. On one hand, India will need to reassess its reliance on the US for high-skilled job creation, particularly in the IT and services sectors, and prepare for tougher tariffs on several import commodities. On the other hand, India should intensify its efforts to strengthen its position in the global supply chain, as the Trump administration may offer opportunities in this regard.

Strengthening Autonomy and Building Negotiating Power

All said, India must enhance its negotiating power, build internal resilience, and reduce its tech dependency on the US to emerge as the ultimate beneficiary in this scenario. While the evolving dynamics between the US and India present both challenges and opportunities, India’s proactive strategy to strengthen its position will be crucial in navigating this complex geopolitical landscape and securing long-term growth and autonomy.

By Ajai Garg, Head Digital Tech and Law, Anand and Anand and Vrinda Garg, Financial Research Associate, D.E. Shaw and Co.

About the authors:

Dr. Ajai Garg is a seasoned technocrat with more than 25 years of experience who was at the forefront of digitalization programs in India. Previously, as a Senior Director at MeitY, he led the International Cooperation Division. He remains a key contributor to various technology-oriented and trade and commerce-related strategic forums of the Indian government and was a ‘Lead Negotiator’ for the Digital Trade Chapter in various FTAs. Presently, he leads Anand and Anand Associates’ ‘Digital & AI’ vertical and Koan’s ‘Technology and Trade’ vertical.

Co-author Vrinda is a recent graduate from Ashoka University and holds a bachelor's degree in Economics and International Relations. She is currently working as a Financial Research Associate at a NY-based hedge fund. She’s passionate about geopolitics, specifically tech policy, and is committed to exploring intersections between finance, technology, and global affairs.