USA’s ‘Reciprocal Tariffs’ on India & the World

GS III-Economy

On April 2, 2025 (termed ‘Liberation Day’), U.S. President Donald Trump announced the imposition of reciprocal tariffs on imports from various countries, including India. This move aims to correct trade imbalances but has intensified global economic tensions and diplomatic frictions.

Understanding the Concepts

What is a Tariff?

• A tariff is a tax levied by a government on imported goods/services.
• Purposes: Protect domestic industries, regulate trade, generate revenue, correct trade imbalances, and exert economic influence.

Reciprocal Tariff:

• A mirror measure imposed in response to tariffs by another country.
• Aims to establish fair trade practices and ensure level playing fields.

Discounted Reciprocal Tariff:

• Bilateral arrangement where both nations lower tariffs for each other below normal WTO rates.
• Designed to counter perceived trade imbalances and encourage mutual concessions.

Key Features of the US Reciprocal Tariffs Policy (2025)

• Announcement Date: April 2, 2025 – Declared as ‘Liberation Day’.
• Universal Base Tariff: 10% on all imports into the US.
• Country-Specific Higher Tariffs applied to nations with large trade surpluses.
• Tariff Range: 10% to 50% on various sectors including:
  • Textiles
  • Electronics
  • Chemicals
  • Machinery

India-Specific Impact

India’s Tariff Rate:

• A 26% discounted reciprocal tariff was imposed on Indian exports.

Sectors Affected:

• Negatively Affected:
  • Electronics (Exports worth ~$14 billion)
  • Gems & Jewellery (Over $9 billion)
  • Textiles and Fisheries
• Exempt/Minimally Affected:
  • Pharmaceuticals (~$9 billion)
  • Energy exports
  • Auto parts and aluminium (subject to earlier 25% tariff)

Economic Adjustments by India:

• May lower tariffs on U.S. imports like auto parts, gems, and jewellery.
• Focus on preserving long-term strategic trade ties with the U.S.

Comparative Advantage:

• Despite the 26% tariff, India fares better than regional competitors:
  • Vietnam (46%), Thailand (37%)
  • Bangladesh (37%), Sri Lanka (44%)
  • Pakistan (30%)

 

India–USA Trade Overview (2024)

Category	Value
Total Trade	$129.2 billion
US Exports to India	$41.8 billion (↑ 3.4% YoY)
US Imports from India	$87.4 billion (↑ 4.5% YoY)
Trade Deficit (US)	$45.7 billion (↑ 5.4% YoY)

India’s Top Exports to USA:

• Precious stones & metals (e.g. diamonds, gold)
• Pharmaceuticals (generics & APIs)
• Textiles & apparel
• Engineering goods (auto parts, tools)
• Organic chemicals
• IT & software services (services trade)

USA’s Top Exports to India:

• Crude oil and LNG
• Aerospace & defense equipment
• Medical devices
• Industrial machinery
• Electronics
• Agricultural products (almonds, apples, soybeans)

Impact on Global Trade

• Countries Hit Hardest:
  • China (34% tariff)
  • Taiwan (32%)
  • EU (20%)
  • Japan (24%)
• Global Consequences:
  • Trade War Fears: Rise in retaliatory tariffs by affected nations.
  • Market Volatility: Global stock markets declined due to uncertainty.
  • Supply Chain Disruptions: Increased costs and risks for companies dependent on global trade networks.

The U.S. move towards reciprocal tariffs marks a shift in global trade diplomacy towards economic nationalism. While India faces immediate challenges, it may leverage its comparative advantage and deepen strategic partnerships with the U.S. to navigate this evolving landscape.