U.S. President Donald Trump’s announcement of reciprocal tariffs on India starting April 2 has caused serious concern in New Delhi. India’s high import taxes on American goods have long been contentious, now affecting trade partners.
This move is not without its consequences. It puts exports like jewellery and pharmaceuticals at risk, potentially leading to a significant loss of $7 billion annually for India. The looming question is, how much will this trade war cost India? Can New Delhi negotiate a way out before the damage is done? This million-dollar question keeps policymakers and trade experts on their toes, underlining the potential gravity of the situation.
India currently charges much higher import taxes on U.S. products than the U.S. does on Indian goods, with a gap of more than 10 percentage points. If the U.S. lowers these tariffs, India’s exports to the U.S. could drop by $2 billion to $7 billion in the financial year 2025-26, according to India Ratings and Research.
India has a trade surplus
India has a trade surplus of over $36 billion with the United States. The share of Indian exports to the U.S. rose from 16.9% in 2019-20 to 17.7% in 2023-24, which could lead to President Trump’s administration tariff actions.
During his campaign, Trump criticised Indian tariffs on several U.S. exports and mentioned the possibility of a reciprocal tax on Indian exports.
Fairer trade
Trump believes it’s time for the U.S. to use tariffs to create fairer trade. “Under the Trump administration, you will pay a tariff, and in some cases, the cost will be passed on to consumers.” Trump insists that the U.S. will no longer accept unfair trading practices. India charges high import taxes on American goods.
India imposes 100 per cent tariffs, creating an unfair trade system for the United States. On April 2, reciprocal tariffs, meaning tariffs imposed by India, will be matched by the U.S. Additionally, if India uses non-monetary tariffs to limit U.S. market access, the U.S. will implement similar restrictions.
A report by Crisil Intelligence warns that the reciprocal taxes could significantly harm India’s exports, contributing to about 22% of its GDP. This, coupled with the challenges from slowing global trade growth and increased uncertainties, could worsen India’s economic situation. The Commerce and Industry Ministry has taken proactive steps by initiating stakeholder consultations to assess the impact of a potential hike in U.S. tariffs.
April 2 is a crucial timeline
On April 2, reciprocal tariffs will be enacted, meaning that any tariffs imposed by India will be matched by the U.S. Additionally, if India uses non-monetary tariffs to limit U.S. market access, the U.S. will implement similar restrictions.
A recent Crisil Intelligence report underscored the potential harm these tariff actions could inflict on India’s exports, accounting for about 22 percent of its GDP. According to Bloomberg Economists, India has a wide tariff gap with the U.S. If the U.S. decides to equalise tariffs, India could face serious consequences.
Industry and trade experts in India said that the President could not import India’s top exports, such as automobile parts, electronics, textiles, diamonds, jewellery, chemicals, and pharmaceuticals, to the U.S.
The most vulnerable are chemicals, metal products, and jewellery, followed by automobiles, pharmaceuticals, and food products, say analysts.
Losses and gains
India must assess its potential gains and develop innovative strategies for future trade challenges.
If President Trump penalises U.S. companies employing imported talent, India’s outsourcing and IT services industry will see significant constraints.
Commerce Minister Piyush Goyal started his U.S. trip on Monday to meet with the new U.S. Trade Representative, Jamieson Greer, who is implementing Trump’s tariff plan. Greer was also part of Trump’s first administration, which targeted China and opened export opportunities for India, especially in the electronics sector.
Despite contentious issues about tariffs, the United States remains India’s largest trading partner, with bilateral trade reaching $118.2 billion in fiscal year 2024. India maintained a trade surplus of $36.8 billion during this period. Trump criticised India for imposing automobile tariffs 100%, claiming that such trade imbalances allowed foreign countries to take advantage of the U.S. for decades.
Like other trade partners, the Trump administration will use tariffs to commercial market access for American goods in India.
New Delhi must now find solutions to the situation quickly. One would be to discuss the issue and scale down the taxes. The two sides aim to increase market access, reduce tariff and non-tariff barriers and deepen supply chain integration. India should focus on lowering tariffs through bilateral negotiations and diversifying its export markets. This strategy could help India navigate the upcoming trade challenges more effectively. It will be a give-and-take attitude that will help New Delhi overcome the situation.
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