Trump Imposes Tariff on India
President Trump has announced a 50% tariff on India, set to take effect on August 27th. This decision seems to stem from his belief that India is emerging as a significant competitor, much like China did in previous years.
However, applying tariffs might not effectively address the issue. Why? Because India hasn’t really pivoted towards manufacturing as one might think. Instead, they’re significantly tapping into our technology sector, excelling at securing work while often remaining unnoticed.
Bangalore is flourishing. Meanwhile, Boston seems to be struggling. What’s going on?
Since 2001, the U.S. has lost nearly 5 million jobs to China, and during the same time frame, around 4 million technology jobs have relocated to India. Moreover, India is now utilizing sensitive technology and information from the U.S.
This situation isn’t just about economic impacts—it’s essentially a quiet national crisis.
To truly revitalize American industry, merely imposing tariffs on Indian goods won’t suffice. A more proactive approach regarding Indian services is also crucial.
Tech Growth in India
India’s tech industry is thriving. By 2024, technology is projected to contribute roughly 7% to India’s GDP. The sector employs 5.4 million people, having created 126,000 new jobs just last year. Revenues saw a year-on-year growth of 5.1%.
Technology is reshaping India. Cities like Bangalore are becoming hubs for new billionaires and skyscrapers while tech job growth in many prominent U.S. cities, like Boston, has plateaued. How did this happen?
One word: offshoring.
More American companies are shifting their digital services to India. The reason? Labor costs are significantly lower. While an average American tech worker earns around $110,000 annually, their Indian colleagues make around $32,000. This stark difference makes hiring Indians appealing.
Why choose American workers when you can hire Indians for a fraction of the cost and still get the work done?
Offshoring is driving the rapid expansion of India’s tech sector. In fact, about 80% of that growth comes from exports, which is markedly higher than what China experienced in a similar period.
Interestingly, the U.S. trade deficit in services with India was only $3.2 billion, which seems relatively small compared to other countries. This can create the misleading impression that offshoring isn’t a pressing concern.
The reality, however, is more complex. The scale of offshoring is often masked since many Indian services are essentially branches of American tech companies catering to global markets, not just the U.S.
The American tech behemoths are reaping the benefits from this offshore model. While the Indian government gains tax revenues and citizens find opportunities through new jobs, many in the U.S. often overlook this inequity—highlighting how big corporations can overshadow everyday Americans.
Consequences of Offshoring
In my book “Reshore: How tariffs take our work home and revive American dreams,” I discuss the three significant ways offshoring impacts American workers.
- It leads to job losses in the U.S.
- It suppresses wages by introducing a surplus of cheaper foreign labor into the job market.
- It diverts vital investments away from the U.S., especially in education.
Estimating technology jobs lost to India is tricky, but a good starting point is considering the number of jobs supported in the U.S. The 5.4 million tech workers in India, with 80% of their revenue stemming from exports primarily to the U.S., paints a picture of how intertwined these markets are.
If we make a rough calculation based on a one-to-one relationship between Indian and American jobs, it suggests around 4.3 million jobs may have shifted. That said, this could be an overestimate—American workers tend to be more productive. Regardless, the job losses are undoubtedly in the millions.
This job shift has broader implications for the labor market.
Workers who have lost jobs locally contribute to reduced domestic employment and lower wages. At the same time, employers can increasingly provide high-tech services from India, which exacerbates wage suppression.
It’s a global race to the bottom, and American workers seem to be losing the most ground.
Impact on Future Generations
The long-term ramifications of offshoring are profound. It diminishes the demand for skilled workers in the U.S., boosts demand in India, and promotes education abroad—essentially sidelining our own education system. It becomes more economical not just to hire Indians but also to train them.
History supports this claim. In 2004, 51,000 Americans graduated with Computer Science degrees and 4,000 in software engineering. Fast forward to 2024, those numbers have risen to around 100,000 and 8,000 respectively, which is commendable, but still not on par compared to India.
In contrast, around 80,000 Indian students completed their Computer Science degrees in 2004, and 5,000 in software engineering. By 2024, those numbers ballooned to over 250,000 and 15,000, respectively. Despite having a smaller tech industry that largely relies on American investment, India is preparing more professionals for the tech sector than the U.S. And they’re doing it faster.
The reality is that American tech firms prefer educated Indians to educated Americans, which drives significant investments from major U.S. tech companies into Indian universities.
Returning Services to America
The U.S. has been losing out for decades, not being able to produce essential goods—a situation that poses a severe threat. This increasingly applies to tech services too, as Americans find themselves sidelined in education, jobs, and innovation.
Trump’s insight regarding tariffs might be on point, but in the case of India, it feels like we’re fighting last year’s battle. To genuinely address these issues, we need tariffs on offshore services or wage regulations for foreign contracts—otherwise, America will continue to depend heavily on foreign offerings with little remaining at home.
