President Donald Trump signed a memorandum on Thursday (early Friday morning IST) mandating US trade authorities to study trade relationships and impose reciprocal tariffs on all countries that charge higher rates and impose non-tariff barriers on American imports than the US does for their imports.
The President asked officials to come up with new tariffs that take into account tariffs that other countries charge the US, the taxes they charge on foreign products, the subsidies they give their industries, their exchange rates, and other actions.
“I have decided, for purposes of fairness, that I will charge reciprocal tariffs, meaning whatever other countries charge the US,” said Trump in the Oval Office.
India was likely to be among those countries affected by the policy given the disparity in rates. “India has more tariffs than nearly any other country,” Trump was quoted by Reuters as saying at the time of signing the order, just two hours before he was due to meet Prime Minister Narendra Modi. However, the exact details of how this would affect trade between the two countries were not clear at the time of going to press.
Reuters reported this week, based on data from the World Trade Organization, that India’s simple average tariff rate is 17%, compared to about 3.3% for the US. On a trade-weighted basis, India’s rate is about 12%, versus the US rate of 2.2%. Given the expansive mandate Trump has introduced, India’s production linked incentive scheme, and its subsidies for different sectors including agriculture.
In a sign of how much the policy meant to him, Trump posted on Truth Social earlier in the day that he intended to announce the tariffs. “THREE GREAT WEEKS, PERHAPS THE BEST EVER, BUT TODAY IS THE BIG ONE: RECIPROCAL TARIFFS!!! MAKE AMERICA GREAT AGAIN!!!”
On Wednesday, White House press secretary Karoline Leavitt had said that the tariffs would be announced before Modi’s meeting with Trump.
Leavitt said there was very “simple logic” as to why the President wanted to impose reciprocal tariffs. “It’s the golden rule, which we all learned when we were growing up in school: treat others the way you want to be treated. And far too many nations around this world have been ripping off the United States of America for far too long. And that’s why the President believes this will be a great policy that will benefit American workers and improve our national security.”
Peter Navarro, Trump’s top trade advisor in the White House and someone considered to be the architect of the tariff policy, told CNN, “What’s going to happen is we are going to look at all of our trading partners, starting with the ones with which we run the biggest deficits, find out if they are cheating the American people, and if they are, we are going to take measures to correct that wrong.” Navarro said that the US administration will also carefully study non tariff barriers used by countries.
Trump’s top economic adviser Kevin Hassett singled out India this week as a country with high tariffs, warning that Modi and Trump will have a lot to discuss on the issue when they meet.
India has cut duties on a set of items in its recent budget. Delhi has also sent signals that it is willing to buy more American energy products to offset the trade deficit and reduce tariffs to enable more market access for American goods. And it has even floated the possibility of comprehensive negotiations on trade, leading to a free trade pact. A Trump administration official acknowledged the positive “early body signals” from India, emphasised that US wanted a “fair” trade deal, and said that the talks between the leaders was expected to give momentum to a trade deal to be concluded by the end of this year.
But while the summit-level talks may focus on finding a meeting ground, the immediate imposition of reciprocal tariffs could impinge on Indian exports at a time when the economy is struggling to regain its growth momentum.
Shoumitro Chatterjee, an assistant professor of economics at John Hopkins University and a trade specialist, calculates that India ranks eighth among the countries with which the US has a trade deficit. Sectorally, based on average tariffs between 2021 and 2023, the figures show a disparity in tariff rates.
On agriculture, the most politically sensitive sector, Chatterjee found that India’s average tariff on US imports is 41.8%, while US average tariff on Indian imports is 3.8%. The US average agri export to US between 2021 and 2023 was $1.6 billion while Indian agri exports to India was $7.1 billion. On transport equipment, Indian average tariff is 14.9% while US average tariff is 0.9%. Indian export to the US in this sector between 2021 and 2023 was $4.4 billion while US exports to India was $0.9 billion. From pharma to stone, glass, metal and pearls, it is a similar story; India has higher tariffs than US on the same products, and India exports more to the US than the other way round.