The United States has implemented a sweeping set of tariffs under the Trump administration, impacting trading partners worldwide and introducing significant uncertainty into the international trade system. The measures, which had been signalled for some time, are ostensibly aimed at reducing the substantial US goods trade deficit, which stands at over a trillion dollars, and fostering domestic manufacturing growth. However, the move has ignited concerns about triggering a global trade conflict.
A standard 10 per cent duty on most imported goods took effect on April 5. This was followed on April 9 by a shift to a system the administration terms “reciprocal tariffs,” applying import duties on goods from other nations at rates mirroring the tariffs those countries impose on American exports.
India is among the nations affected, facing a 27 per cent reciprocal levy. While this rate is lower than those applied to some other Asian economies like China (54 percent), Vietnam (46 percent), Sri Lanka (44 percent), and Bangladesh (37 percent), it exceeds the tariff rate for goods from the European Union (20 percent) and is slightly higher than that for Japan (25 percent).
While proponents suggest these tariffs will yield positive economic outcomes for the US, projections regarding their impact appear potentially overstated, with some analyses anticipating no decrease in US GDP and only a modest increase in federal revenue over the next decade.
The administration’s characterisation of these measures as “reciprocal” has drawn scrutiny. The tariff rates are reportedly not a direct mirror of other nations’ existing tariffs on US goods but are instead calculated using a formula based on the US trade deficit with each partner, divided by the value of imports from that nation, and then halved. This approach appears to prioritize narrowing the trade gap over achieving true tariff parity. Critics argue this protectionist stance could disproportionately harm developing and less wealthy nations by increasing the cost of essential goods and technologies crucial for sustainability and climate initiatives. The structure of the tariffs effectively encourages trading partners to increase their imports of US products while simultaneously decreasing their exports to the US to lower the reciprocal tariff rate, potentially creating challenging economic imbalances for some countries.
Several Indian sectors are expected to feel the impact of the new US tariff structure. Industries particularly affected include electronics, gems, and jewellery, both of which are now subject to a 27 per cent tariff. Previously, electronics exports faced duties below 0.5 per cent and gems and jewellery around 2.12 per cent. India’s substantial textile and apparel exports to the US, valued at approximately $11 billion, will see tariffs triple from 9 per cent to 27 per cent. Although competitors like China and Vietnam face even higher tariffs in these categories, the increase presents a challenge. The seafood sector, particularly shrimp exporters, will experience a significant tariff hike of 27.83 per cent, while agricultural products like dairy will see a notable increase of 38.23 per cent. The footwear industry, with significant exports to the US market, faces a 15.56 per cent tariff increase, potentially diminishing the competitiveness of Indian footwear. Notably, the pharmaceutical sector has been exempted from these new tariffs, providing relief for substantial exports to the US. However, auto parts and aluminium manufacturers will continue to face a pre-existing 25 per cent tariff. The increased costs for American consumers due to these tariffs could negatively affect demand for Indian products. Despite concerns, some analysts suggest the overall impact on India’s economy might be contained, given that exports in the most vulnerable sectors represent a relatively small portion of India’s GDP.
Amidst the broader US-China trade tensions, India may find opportunities. The ongoing dynamic could potentially boost Indian exports, particularly in areas like electronics and telecommunications equipment, including the assembly of products like iPhones. Having benefited from trade diversions during previous trade friction, India is seen as potentially well-positioned to capitalise on the current situation, although the extent of this depends on the trajectory of US-China trade relations. US tariffs on Chinese goods could benefit various Indian sectors as American buyers seek alternative suppliers. The information and communication technology sector in India may also see gains as US companies diversify their supply chains. Furthermore, new avenues could open for India’s e-commerce and outsourcing industries. The prospect of a significant Bilateral Trade Agreement between India and the US, potentially valued at $500 billion, could further enhance India’s export landscape and attract increased investment.
India has adopted a measured approach to the unfolding trade situation, refraining from imposing retaliatory tariffs and instead seeking to de-escalate tensions through various measures. These include commitments to import US energy resources, strengthening defence cooperation, and exploring potential defence acquisitions. India has also implemented concessions, such as eliminating a digital advertising tax, reducing tariffs on certain alcoholic beverages and luxury automobiles, and cutting duties on solar cells. This strategy is likely influenced by the significant trade relationship between India and the US, which exceeds $190 billion. The potential for exceptionally high tariffs poses a severe risk to key Indian export sectors. Reports from the US Trade Representative’s office have highlighted concerns about certain Indian trade practices, and the US administration’s tariff approach appears partly aimed at leveraging these during trade negotiations. This move may also be viewed in the context of countering India’s increasing engagement with blocs exploring alternatives to dollar-denominated trade. With the Indian Rupee experiencing depreciation against the dollar and foreign exchange reserves showing a decline, the performance of the stock market is being closely monitored. The market saw a notable downturn on April 7, 2025.
India’s ambition to become a prominent global manufacturing and export hub hinges on improving the ease of doing business, enhancing logistics and infrastructure, and ensuring policy predictability. The implementation of reciprocal tariffs is expected to have a short-term effect on India’s job market. Navigating this complex international trade environment requires India to carefully balance its strategic relationship with the United States, its stance on certain US trade policies, and its economic ties with major trading partners like China and Vietnam. By effectively managing these dynamics, India can aim to leverage its economic strengths and adapt to the evolving global trade landscape, potentially positioning itself as a viable alternative in global supply chains.
