Apr 04, 2025 04:00 AM IST
Trump’s new tariffs raise costs for Indian goods in the US, risking India’s export market unless retaliatory measures are taken.
What do Trump’s reciprocal tariffs mean for India? As of now, they entail a massive increase in tariffs faced by Indian goods in the US markets. Trump’s 27% adjusted reciprocal tariff on India will be over and above the tariffs that were there on Indian goods. A Barclays research report issued last week estimated that India faced a tariff of 2.7% on its exports to the US, while US exports to India encountered a tariff of 10.5%. Unless India retaliates to the US’s latest tariffs – there are no such indications from the Indian government as of now – it is Indian exports that will now face a higher tariff in the US than US exports to India.
Will this lead to a significant loss of export market for India in the US? The US, after all, is India’s largest export market, and India’s export surplus vis-à-vis the US plays a significant role in cushioning its overall trade deficit. The answer to this question depends on two factors, both of which are likely to be dynamic. Because the Trump administration has imposed tariffs not just on India but all of the US’s trade partners, the net change in India’s competitive advantage in the US market will depend on how other exporters to the US have been affected by tariffs. An analysis by Ernst and Young suggests that the impact could vary across major commodity groups of Indian exports to the US. For example, there could be headwinds in energy exports, some opportunities in textile exports, and a status quo in sectors such as pharmaceuticals.
To be sure, the state of play in Indo-US trade dynamics could change going forward as trade negotiations continue to take place between the two countries. Given India’s cautious response to the Trump administration’s tariff announcements, which has reiterated the basic understanding from Prime Minister Narendra Modi’s visit to the US in February, a more comprehensive and granular negotiation and eventual agreement could well be on the cards.
Tariffs aside, India’s export prospects could also be affected by the state of the US economy after the imposition of these tariffs, as well as the relative position of the rupee vis-à-vis the dollar. All of these factors are likely to be extremely fluid in the days to come. India is still hoping for a relatively amicable resolution to this disruption, but it is unlikely that it will not have to entail some cost, especially on account of lowering duties for US products in India or committing to buying US goods, which have cheaper substitutes in the global market.
