US President Donald Trump, a ‘buddy’ of Indian Prime Minister Modi, stated that New Delhi has not been treating Washington ‘proper’ and due to this fact has slapped the fifth-largest financial system with 27 per cent tariffs. This transfer, a part of a broader protectionist coverage, goals to spice up US home manufacturing and scale back its commerce deficit with India, which stood at $35.31 billion in 2023-24.
However what precisely are tariffs, why has the US imposed them, and the way will they affect India’s financial system? Right here’s a easy breakdown:
1. What occurred?
A tariff is a tax or responsibility imposed by a authorities on imported items. Importers should pay this responsibility, which frequently will get handed on to shoppers, making international merchandise dearer.
Additionally Learn: Trump’s tariff bombshell hits India, however some desi sectors dodge the shrapnel
The US has determined to impose new tariffs of as much as 27% on Indian items, efficient from April 9, 2025.What are Reciprocal Tariffs? Reciprocal tariffs are taxes imposed by a rustic in response to comparable tariffs or excessive import duties by one other nation. It’s a tit-for-tat commerce coverage the place one nation will increase duties to counter one other’s commerce restrictions.
New tariff construction on Indian items
- Current tariffs: 25% on metal, aluminum, and auto components.
- New tariffs: April 5-8: A ten% baseline tariff on remaining Indian items; April 9 onwards 27% tariffs will apply to India-specific imports.
- Exempted sectors: Prescription drugs, semiconductors, vitality merchandise (oil, gasoline, coal, LNG), and copper.
India shouldn’t be the one nation affected. The US has additionally imposed 54% tariffs on China; 46% on Vietnam; 37% on Bangladesh; 36% on Thailand. As per the trade gamers and consultants, India’s place is relatively extra beneficial than that of its competitor nations even because the duties may pose challenges for Indian items.
2. Who does the reciprocal tariffs coverage contain?
US President Donald Trump lately introduced new tariffs on sure imports from India and over 60 international locations, citing unfair commerce practices because the rationale behind the choice. This transfer comes as Indian Prime Minister Narendra Modi has been actively negotiating a Bilateral Commerce Settlement geared toward strengthening commerce ties between the 2 nations.
Additionally Learn: Trump’s 27% tariffs put strain on India. Is New Delhi prepared for the affect?
Nonetheless, the imposition of those tariffs might considerably affect Indian exporters, notably in key industries reminiscent of metal, textiles, and auto manufacturing, elevating issues concerning the potential repercussions for India’s financial system and its commerce relationship with the US.
3. When did this occur?
In February 2025, Indian Prime Minister Narendra Modi made a big go to to Washington, the place discussions started on a Bilateral Commerce Settlement geared toward considerably rising commerce between India and the US to $500 billion by the 12 months 2030.
Nonetheless, simply weeks later, on April 2, 2025, the panorama shifted dramatically when the US introduced new tariffs on Indian items. This transfer was seen as a setback to the continued commerce negotiations, creating an air of uncertainty round the way forward for the proposed Bilateral Commerce Settlement.
4. Which sectors does it affect?
The newest tariffs are part of the continued US-India commerce relationship, affecting exports from India to the US. For the reason that US accounts for 18% of India’s complete exports and 10.73% of bilateral commerce, the affect might be vital.
India’s important exports to the US, as of 2024, included drug formulations and biologicals ($8.1 billion), telecom devices ($6.5 billion), valuable and semi-precious stones ($ 5.3 billion), petroleum merchandise ($4.1 billion), gold and different valuable metallic jewelry ($3.2 billion), ready-made clothes of cotton, together with equipment ($2.8 billion), and merchandise of iron and metal ($2.7 billion).
5. Why is US slapping tariffs?
America has imposed tariffs for a number of key causes. Firstly, the US goals to guard its home manufacturing sector by making native industries extra aggressive within the world market. By imposing tariffs, the Trump 2.0 authorities hopes to encourage shoppers to purchase American-made merchandise, thereby boosting native manufacturing.
Secondly, the tariffs are a part of an effort to cut back the commerce deficit, which stood at $35.31 billion with India within the 2023-24 fiscal 12 months. The US is in search of to “steadiness this hole and promote fairer commerce practices.”
Lastly, the US has expressed issues about world commerce practices, asserting that sure international locations, together with India, profit from unfair commerce benefits that distort competitors.
6. How will it affect India?
The current developments in commerce tariffs are poised to have vital implications for India. One fast problem that Indian companies will face is the upper prices related to exporting items to the US. As Indian merchandise turn out to be dearer as a consequence of elevated tariffs, there’s a potential threat of lowered demand from American shoppers and companies.
This might notably affect sectors like metal and automotive, that are already grappling with a 25% tariff. A rise in tariffs might exacerbate the scenario, resulting in an extra decline in gross sales and affecting the general profitability of those industries.
However not all issues essentially will probably be ache factors for India as an array of long run alternatives current themselves. The continuing negotiations between India and the US for a Bilateral Commerce Settlement might pave the best way for alleviating tariffs, doubtlessly benefiting exporters sooner or later.
Moreover, as world provide chains realign, India stands to achieve if it will probably improve its ease of doing enterprise, enhance logistics, and guarantee coverage stability. Such enhancements might place India as a sexy vacation spot for companies seeking to diversify their provide chains.
Furthermore, the rise in tariffs might encourage Indian firms to focus extra on strengthening home manufacturing capabilities. This shift might result in elevated native manufacturing and the exploration of recent markets past the US, fostering a extra resilient financial atmosphere.
