US President Donald Trump has been relentless in his pursuit of a tariff overhaul ever since assuming workplace in January. After making Mexico, China, and Canada his first victims (despite the fact that he paused a number of the strikes for a restricted time), and threatening 25% tariffs on all metal and aluminium imports, he then introduced his intention to introduce reciprocal tariffs on US’s imports from different nations, together with India. Highlighting the “excessive” tariffs from nations like Brazil, India, and China, he acknowledged that his reciprocal tariff plan can be carried out beginning 2 April.
The US has persistently been India’s largest commerce associate, with a 17.7% share in its complete exports in FY24. Nonetheless, India is certainly one of many sources of imports for the US: it made up only a 2.7% share of complete US imports in FY24. India’s dependence on US items is extra: the US’s share in India’s complete imports was greater at 6.2% in FY24. India has maintained a constant merchandise commerce surplus with the US, which reached $35.3 billion in FY24.
How a lot tariff do India and US cost one another?
The weighted common tariff charges—a single indicator derived from tariff charges on completely different items—imposed by each India and the US on items imported from one another have considerably decreased because the 2000s. India’s tariff fee, which averaged over 20% in 2000, has dropped to beneath 10%. The US’s tariff on Indian items peaked at 3.9% in 2001 however has since fallen to 2.9% in 2022.
Consequently, the tariff hole between the 2 nations decreased from a peak of twenty-two.9 proportion factors in 2000 to 2.5 proportion factors in 2022, knowledge from the World Built-in Commerce Options (WITS) confirmed.
India, together with different rising Asian economies like Thailand and China, has a lot greater tariff charges on the US, making them extra weak to reciprocal tariffs. In distinction, developed Asian economies with US free commerce agreements (FTAs), resembling South Korea and Singapore, are much less in danger, stated a report by Nomura, dated 10 February.
If the US imposes reciprocal tariffs, India’s exports to the nation may drop by $2-3.5 billion in FY26, probably hurting GDP development by 5-10 foundation factors from the present estimate of 6.6%, notes Devendra Kumar Pant, chief economist and head of public finance at India Rankings, in a report dated 28 February. (A foundation level is one-hundredth of a proportion level.)
Which sectors are more likely to be the worst hit?
Though Trump’s risk has alarmed policymakers and economists alike, the precise influence of the tariffs will rely on whether or not they’re utilized on the product, sector or nation degree.
A report by World Commerce Analysis Initiative (GTRI) notes that if tariffs are imposed on the product degree, the influence could also be restricted since India and the US don’t essentially commerce similar items. Nonetheless, if utilized on the sector degree, total industries may face main disruptions.
On the broad sector degree, the potential tariff gaps between India and the US fluctuate, with the report highlighting agriculture, meat, and processed meals as probably the most weak sectors to reciprocal tariffs. The fish, meat, and processed seafood sector stands to be the toughest hit, with $2.58 billion in exports going through a tariff differential of 27.8%, the GTRI report famous.
Aside from this, meals merchandise, footwear, and textiles additionally face vital tariff gaps favouring India. Nonetheless, since their commerce with the US is small in absolute phrases, these sectors are more likely to expertise comparatively much less publicity to reciprocal tariffs.
The complete influence of the tariffs risk will develop into clearer as soon as the Trump administration finalizes new charges—if it does—for all nations subsequent month. He has already issued exemptions on Mexico and Canada after making them the earliest victims of his tariffs. India is presently weighing its choices, and can watch Trump’s actions towards different nations for cues. To make sure, talks on a commerce deal between the 2 nations are additionally ongoing in Washington, which may deliver extra readability on tariffs.
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