The Trump administration’s reciprocal tariffs against India will come into effect from 2nd April 2025. US President Donald Trump had earlier declared April 2nd as “Liberation Day” and promised to impose new tariffs, which could potentially trigger outrage within the global trade system. The fresh tariffs are expected to be announced by President Trump at a ‘Make America Wealthy Again’ event at the White House Rose Garden on Wednesday.
In March this year, Donald Trump announced that the US would impose reciprocal tariffs on countries it has a trade deficit. Justifying reciprocal tariffs, the US President said that other countries have been unfairly taxing the US, and therefore, now it is the turn of the US to tax them. “Other countries have used tariffs against us for decades, and now it is our turn to start using them against those other countries. On average, the European Union, China, Brazil, India, and countless other nations charge us tremendously higher tariffs than we charge them,” said Trump, accusing India of imposing unfair tariffs on the US automobile by over 100%.
However, on 1st April 2025, Trump claimed that India is planning to drop tariffs against the US ‘very substantially’. “I think a lot of countries will drop their tariffs because they have been unfairly tariffing the United States for years. I think I heard that India, just a little while ago, is going to be dropping its tariffs very substantially. I said why didn’t somebody do this a long time ago?” Trump said.
On Tuesday, Karoline Leavitt, the White House spokesperson, said that India imposes a 100 per cent tariff on American agricultural products. It is speculated that the agricultural, pharma, medical devices, precious stones, and machinery sector goods may get adversely impacted if Trump goes ahead with imposing reciprocal tariffs against India. There are high chances that the Trump administration may impose additional customs duties given the high tariff differential between India and the US import duties.
Sector-level impact of the US’s reciprocal tariffs on India
This differential is 8.6% for chemicals and pharmaceuticals, 5.6% for plastics, and 1.4% for textiles and clothing. The tariff gap between India and the US is 13.3% for diamonds, gold, and jewellery, 2.5% for iron, steel, and base metals, and 5.3% for machinery and computers. 7.2% for electronics, and 23.1% for automobiles and auto components.
The tariff differential between India and the US in labour-intensive, especially MSME-focused sectors is significantly high with it being 30.02% on animal products, 17.2% on footwear, 14.4% on transportation and 10.2% on chemicals.
Experts opine that the higher the tariff differentials, the worse the impact fresh tariffs will have on certain sectors in India. The analysis of the think tank Global Trade Research Initiative (GTRI) suggests that fish, meat, and processed seafood sectors would be hit the worst, with $2.58 billion in exports in 2024, facing a 27.83% tariff gap. Take shrimp, for example, India is a leading exporter of frozen shrimp with the US being its top importer, having imported 2,97,571 MT of frozen shrimp in fiscal year 2023-24; however, with additional tariffs, India’s seafood exports could suffer a major blow.
Various think tanks and trade experts suggest that India might lose $6 billion (0.16% of GDP) in exports if broad 10% tariffs are imposed. Meanwhile, if the tariffs surge to 25%, the loss could be a whopping $31 billion. It is pertinent to note that India and the US are major trade partners. In 2024, India exported goods worth $81 billion and imported goods worth $44 billion from the US. Meanwhile, the USA’s share in India’s total exports has surged to 17.7% in FY 2024. In January this year, the year-on-year Indian exports to the US surged by 39% to $8.44 billion, while imports also increased to 3.57 billion.
A Washington Post report claims that Trump and his tariff team have chalked out a plan to impose a 20% tax on most of the products imported by the US. The Trump administration is also reportedly planning on utilising this money to give a tax refund or dividend to the American taxpayers.
Notably, just last week, Donald Trump announced a 25% tariff on all auto imports and a similar tariff on steel and aluminium was imposed in March this year.
Speaking of electronics, which is India’s largest export category in the US and having earned $11.1 billion in fiscal year 2024, these include India-assembled Apple iPhones, which are shipped to the US. As per Emkay Global’s report, if the reciprocal tariffs are imposed, iPhones assembled in India would become costlier for American consumers. With China having 40% tariffs in place on Chinese-made iPhones, India emerged as an economic alternative for the tech giant, however, fresh tariffs could disrupt Apple’s supply chain shifts and make India a less preferred manufacturing hub.
In the gold and jewellery sector, India exported jewellery to US worth $9.9 billion in FY24 alone. This accounts for 30% of exports in this category. India imposes 20% tariffs on gold jewellery imports from the US, while the latter imposes 5.5% tariffs. If the US decides to impose reciprocal tariffs to match the existing tariff differential, the lustre of India’s gold and jewellery sector would be tainted.
Similarly, India faces the threat of additional tariffs in the textile sector, wherein it exported textiles worth around Rs 9.6 billion (28% of total textile exports) in FY24 to the US. In the US import market, India is behind China, Vietnam and Bangladesh, however, an unstable Bangladesh and its nearly destroyed once-thriving textile industry opened opportunities for India. If the US imposes additional tariffs on Indian textile exports, it would have a negative effect, however, India can benefit from diverted US orders if tariffs against Chinese textiles remain high.
In the automobile sector, while India is not a major car or bike exporter, the country exports auto components to the US, with Indian manufacturers like Forge Bharat, which earns 44% revenue from the US and Motherson Sumi at risk.
In the pharmaceuticals sector, India accounts for a massive 47% of the USA’s generic drug supplies. Last year, India’s pharma exports to the US were recorded to be worth $12.5 billion. India’s Sun Pharma, Lupin and Dr Reddy’s are key exporters to the US. Given the USA’s heavy dependence on Indian generic drug exports, the Trump administration is expected not to make any substantial increase in tariffs, as doing so would increase drug prices in the US and potentially disrupt the market, doing more harm than good for the country.
For dairy products, a 38.23% tariff increase on $181.49 million in trade would impact products like ghee, butter, and milk powder. For processed food, sugar, and cocoa, a 24.99% tariff increase on $1.03 billion in exports would negatively impact India’s snacks and confectionery exports. Meanwhile, there could be a 0.67% tariff increase on coconut and mustard oil. Besides, a tariff hike of 122.10% would affect $19.20 million in India’s exports of alcohol and wines. These, however, are estimated figures if sector-level tariffs are imposed by the Trump administration.
Impact of US reciprocal tariffs on Indian stock markets
Like in many other countries, uncertainty and turbulence prevailed in the Indian stock market initially with the benchmark BSE Sensex closing at a staggering 1,390.41 points, or 1.80 per cent, into the red, reaching 76,024.51 and the NSE Nifty going down by 353.65 points, or 1.5 per cent, into the red, reaching 23,165.70. However, on 2nd April, both Sensex and Nifty registered noticeable gains. The Sensex rose to 593 points, or 0.78 per cent, higher at 76,617.44, while the Nifty 50 settled 166.65 points, or 0.72 per cent, up at 23,332.35. As per Emkay Global, “Sensex touched intraday high of 76680.35 and intraday low of 76064.94. The NSE Nifty touched an intraday high of 23350 and an intraday low of 23158.45.”
Motilal Oswal analysis estimates minimal impact of US reciprocal tariffs on India
A report by Motilal Oswal suggests that its impact on India will be minimal. However, it adds that despite India having the highest tariff differential of 9 per cent with the US among major nations, the reciprocal tariff impact will be only on 1.1 per cent of India’s GDP, as India’s exports to US in the six most vulnerable sectors amount to only 1.1 per cent of its GDP.
The report says “With a tariff differential of 9 per cent and assuming that the elasticity of India’s exports to the US concerning tariffs is -0.5 (implying a 1 per cent rise in the tariff rate would reduce India’s exports to the US by 0.5 per cent), there will be a loss of USD3.6b in exports to the US, which is only 0.1 per cent of India’s GDP (-0.5*9, 4.5 per cent fall in India’s exports to the US).”
The report further asserts that items like agriculture and dairy products, which have a higher tariff differential value, constitute only USD 0.5 billion and are vulnerable but less likely to be affected because of their low value. Items like energy commodities, metals and auto, in which India has a trade deficit with the US, which means that India imports more than it exports, are less vulnerable to the tariffs as imposing higher tariffs on these items will hurt the US more than India.
Overall, the report believes that the impact of reciprocal tariffs (assuming full product-level reciprocity) on India will be limited when compared to its impact with nations like Mexico, Canada and China.
India’s plan of action to mitigate the impact of US tariffs
The Modi government has been taking proactive measures, including trader negotiations, tariff relaxations, diversification and sectoral analysis to mitigate the negative impact of the US reciprocal tariffs. It must be recalled that in February this year, during Prime Minister Narendra Modi’s US visit, India and the United States agreed to aim for a $500 billion bilateral trade by 2030 under ‘Mission 500’ with a Bilateral Trade Agreement (BTA) expected to be signed in late 2025. Last month, Commerce Minister Piyush Goyal visited the United States to seek clarity on the USA’s proposed reciprocal tariff plans and their impact on India. In addition, the Indian government is also mulling tariff cuts on $23 billion of US imports, which make up to 55% of total US goods. India has also proposed trimming tariffs on important US export items like almonds, cranberries, and bourbon whiskey.
Besides these measures, India is also looking forward to deepening trade relations with the European Union, Africa and Southeast Asia to counterbalance risks posed by the USA changing trade policies. India would also want to diversify its trade ties and seek new partners in the region while simultaneously boosting its ambitious Make in India initiative to curb foreign dependence.
Interestingly, while the threat of negative impact on US tariffs looms over India, there’s a silver lining in the Trump tariffs. Over the years, India has positioned itself as an alternative to China in terms in the global manufacturing arena. With the Trump administration imposing heavy tariffs on its commercial bête noire, China, companies wanting to avoid tariffs on Chinese goods may prefer expanding operations in India, especially in the auto, electronics and pharmaceutical sectors. For example, if the US imposes additional tariffs on Chinese cars, making them expensive in the US, Indian manufacturers like Tata, Mahindra, and Maruti Suzuki will have the opportunity to gain ground, especially when India is not a major exporter of cars to the US.
Conclusion
While the saga of Trump’s reciprocal tariffs is yet to unfold fully, India certainly stands at a critical juncture where the country is balancing its economic resilience with strategic adaptation. While the threat of immediate export losses worth billions of dollars looms, India’s insulated economy and the proactive government response, as well as PM Modi possibly leveraging a great personal equation with President Trump, offer a buffer. While the spectre of prolonged trade friction is indeed keeping Indian investors on edge, the Indian stock market’s cautious rebound demonstrates the underlying strength.
The Trump administration’s reciprocal tariffs have undoubtedly created some challenges for India, however, as India pivots towards new markets while also negotiating with the US, India in the coming times may turn the protectionist challenge into an opportunity for growth and self-reliance while demonstrating that in the global arena of trade, flexibility could be the ultimate ‘trump’ card.
