As Indians woke up to a 'tariff-ied' Thursday morning, the global trade landscape is now shifting dramatically, signaling a potential rollercoaster ride for the Indian economy as the new fiscal year kicks off. All thanks to Trump's
reciprocal tariffs. US President
Donald Trump, a 'friend' of Indian Prime Minister Modi, said that New Delhi has not been treating Washington 'right' and therefore has slapped the fifth-largest economy with 26 per cent tariffs. This move, part of a broader protectionist policy, aims to boost US domestic manufacturing and reduce its
trade deficit with India, which stood at $35.31 billion in 2023-24. But what exactly are tariffs, why has the US imposed them, and how will they impact India's economy? Here’s a simple breakdown:
1. What happened? A tariff is a tax or duty imposed by a government on imported goods. Importers must pay this duty, which often gets passed on to consumers, making foreign products more expensive.The US has decided to impose new tariffs of up to 26% on Indian goods, effective from April 9, 2025.
What are Reciprocal Tariffs? Reciprocal tariffs are taxes imposed by a country in response to similar tariffs or high import duties by another country. It is a tit-for-tat trade policy where one country increases duties to counter another’s trade restrictions.
New tariff structure on Indian goods- Existing tariffs: 25% on steel, aluminum, and auto parts.
- New tariffs: April 5-8: A 10% baseline tariff on remaining Indian goods; April 9 onwards 26% tariffs will apply to India-specific imports.
- Exempted sectors: Pharmaceuticals, semiconductors, energy products (oil, gas, coal, LNG), and copper.
India is not the only country affected. The US has also imposed 54% tariffs on China; 46% on Vietnam; 37% on Bangladesh; 36% on Thailand. As per the industry players and experts, India's position is comparatively more favourable than that of its competitor nations even as the duties might pose challenges for Indian goods.
2. Who does the reciprocal tariffs policy involve?US President Donald Trump recently announced new tariffs on certain imports from India and over 60 countries, citing unfair trade practices as the rationale behind the decision. This move comes as Indian Prime Minister Narendra Modi has been actively negotiating a Bilateral Trade Agreement aimed at strengthening trade ties between the two nations. However, the imposition of these tariffs could significantly impact Indian exporters, particularly in key industries such as steel, textiles, and auto manufacturing, raising concerns about the potential repercussions for India's economy and its trade relationship with the United States.
3. When did this happen?In February 2025, Indian Prime Minister Narendra Modi made a significant visit to Washington, where discussions began on a Bilateral Trade Agreement aimed at substantially increasing trade between India and the United States to $500 billion by the year 2030.However, just weeks later, on April 2, 2025, the landscape shifted dramatically when the United States announced new tariffs on Indian goods. This move was seen as a setback to the ongoing trade negotiations, creating an air of uncertainty around the future of the proposed Bilateral Trade Agreement.
4. Which sectors does it impact?The latest tariffs are a part of the ongoing US-India trade relationship, affecting exports from India to the US. Since the US accounts for 18% of India’s total exports and 10.73% of bilateral trade, the impact could be significant.India's main exports to the US, as of 2024, included drug formulations and biologicals ($8.1 billion), telecom instruments ($6.5 billion), precious and semi-precious stones ($ 5.3 billion), petroleum products ($4.1 billion), gold and other precious metal jewellery ($3.2 billion), ready-made garments of cotton, including accessories ($2.8 billion), and products of iron and steel ($2.7 billion).
5. Why is US slapping tariffs?The United States has imposed tariffs for several key reasons. Firstly, the US aims to protect its domestic manufacturing sector by making local industries more competitive in the global market. By imposing tariffs, the Trump 2.0 government hopes to encourage consumers to buy American-made products, thereby boosting local production. Secondly, the tariffs are part of an effort to reduce the trade deficit, which stood at $35.31 billion with India in the 2023-24 fiscal year. The US is seeking to "balance this gap and promote fairer trade practices."Lastly, the US has expressed concerns about global trade practices, asserting that certain countries, including India, benefit from unfair trade advantages that distort competition.
6. How will it impact India?The recent developments in trade tariffs are poised to have significant implications for India. One immediate challenge that Indian businesses will face is the higher costs associated with exporting goods to the United States. As Indian products become more expensive due to increased tariffs, there is a potential risk of reduced demand from American consumers and businesses. This could particularly impact sectors like steel and automotive, which are already grappling with a 25% tariff. An increase in tariffs could exacerbate the situation, leading to a further decline in sales and affecting the overall profitability of these industries.But not all things necessarily will be pain points for India as an array of long term opportunities present themselves. The ongoing negotiations between India and the US for a Bilateral Trade Agreement could pave the way for easing tariffs, potentially benefiting exporters in the future. Additionally, as global supply chains realign, India stands to gain if it can enhance its ease of doing business, improve logistics, and ensure policy stability. Such improvements could position India as an attractive destination for businesses looking to diversify their supply chains.Moreover, the rise in tariffs may encourage Indian companies to focus more on strengthening domestic manufacturing capabilities. This shift could lead to increased local production and the exploration of new markets beyond the US, fostering a more resilient economic environment.
