‘Trump’ Tariffs hit the globe: Where does India stand?
Dr. Sandeep Tripathi
Founder, Forum for Global Studies, New Delhi
Dr. Sovik Mukherjee
Assistant Professor in Economics
Faculty of Commerce and Management
St Xavier’s University, Kolkata.
Background
Trump’s long-term political approach has consistently challenged the liberal international order, favoring protectionist and nationalist policies over multilateral cooperation. Throughout his presidency and beyond, Trump has displayed a pattern of policy inconsistency, often reversing positions or contradicting his administration, which has undermined both credibility and predictability in U.S. foreign and economic policy. His stance on global trade, notably the imposition of tariffs — even against allies — under the “Make America Great Again” (MAGA) banner, disrupted supply chains and sowed uncertainty in global markets.
US President Donald Trump unleashed a barrage of tariffs, going up to 99%, against the country’s trading partners. He made good on his long-standing threats and potentially dragged the world into a possible trade war as he sought to address a $1.2 trillion goods trade deficit and revive local manufacturing. The United States has started imposing a standard 10% duty on all incoming foreign goods starting April 5.
Present Status of Tariffs
From April 9, as was earlier proposed India will be subject to a reciprocal levy of 26%, which is less than that of its Asian rivals, like China (54%), Vietnam (46%), Sri Lanka (44%), Bangladesh (37%), and Indonesia (32%) but higher than EU’s (20%) and Japan’s (25%). Subsequently, only the 10% uniform rate for all targeted nations remained in effect.
At present, however, many of the most sever tariffs have been suspended for a 90-day period, and certain exemptions have been granted. The brief discusses these as follows. Trump has vowed to impose 25% tariffs on all Mexican and Canadian goods. The bulk of imports from both nations are covered by the US-Mexico-Canada Agreement (USMCA), which he signed in 2018 and for which he eventually granted an exemption.
However, along with the 10% universal tariff which went into effect from April 5, a 25% tariff on cars and auto parts (with some exceptions), a 30% tariff on Chinese imports and 25% tariffs on goods from Canada and Mexico, not covered in the USMCA, are in place.
While the 145% reciprocal tariffs on Chinese imports have been paused until July 8, keeping the door open for negotiations. They have cancelled other retaliatory levies. This will cut US tariffs on Chinese imports to 30%, while Chinese tariffs on US imports will be reduced to 10%. Tariffs on smartphones, computers, and other electronic items imported from China are exempted.
Trump initially proposed a 20% tariff on most EU goods, but halved it to 10% until 8 July to allow time for talks.
Nothing extra was imposed for exempted for India. The only threat was that Trump said he had told Apple CEO Tim Cook to fully manufacture iPhones in the US or face a 25% tariff on iPhones made in India or anywhere else in the world.
Reciprocal Tariffs: Workings & Theoretical Underpinnings
Instead of being genuinely reciprocal, Trump’s “reciprocal tariff” is more of a “trade deficit tariff.” A reciprocal tariff, in its purest form, would apply the same tariff rate to imports from Country A as it does to imports from Country B.
Trump’s reciprocal tariff, however, is calculated by dividing the U.S. trade deficit with a partner nation by the imports from that nation and then dividing the result by two. This is evident when we look at the formula.
According to this formula, the only way to lower the reciprocal tariff is for the partner country to export fewer commodities to the US and import more items from the US. It is crucial to remember that these varying levels of “reciprocal tariffs” for the United States’ allies would result in unequal bilateral discussions between nations and the United States, where those who can negotiate better terms will have an edge.
Trump’s tariffs are inherently transactional because they are primarily used as bargaining tools rather than long-term policy instruments rooted in strategic economic logic. Countries that cannot negotiate effectively and continue to face discriminatory tariffs in the U.S. market, especially with the apparent collapse of the multilateral trading system, will have no recourse for justice or remedies.
This deal-making approach reflects Donald Trump’s broader “Art of the Deal” mindset, treating international economic relations like zero-sum transactions where tariffs are a form of coercion. These increased tariffs are unjust to other countries and blatantly protectionist.
Climate injustice is exacerbated by the rising cost of sustainable goods and climate-friendly technologies, which will further compound economic inequality and raise the price of necessities like food and fuel, disproportionately affecting lower-income and marginalized countries.
The theory that is going around is that it is all a tactic to devalue the dollar, increase America’s export competitiveness, and encourage US multinational corporations to move their operations onshore. However, by lowering interest rates or expanding the money supply, the Fed can weaken the dollar at any time. Attempting to accomplish this through a trade war is something divine and beyond our understanding.
Impact on the different sectors of the Indian market
India faces only a 10% US tariff at present, though the 26% rate might resume in July. Keeping in mind that if the revised reciprocal tariffs again become operational, the brief discusses the impact on the Indian market.
If the paused 26% rate becomes operational, then this new tariff structure will still not apply to India’s most significant exports to the United States. Marine products, machinery, medical devices, and, to a lesser extent, gems and jewelry are the most impacted by the latest tariffs.
Pharmaceuticals were exempted, giving a reprieve to exports worth $8 billion to the US in FY24. This explains why pharmaceutical stocks rose the day following the tariff news broke out. Investors had factored in the 7-9% import charge that most analysts predicted the US would levy on medicines manufactured by Indian companies. But imposing tariff on the pharmaceutical sector can’t be ruled out.
Manufacturers of aluminum and auto parts, two of our other major exports to the US, are not negatively affected as they were already facing the Trump administration’s 25% tariff, which is less than the overall 26% tariffs imposed on Indian imports.
India’s competitors are worse off even in the industries where India has been the hardest hit, such as electronics, apparel and textiles, and gems and jewelry. Around $14.5 billion worth of electronics, smartphones, and electrical goods were shipped from India. Previously, the United States levied a duty of less than 0.5% on these goods. It will now rise to 27% while for China and Vietnam, it will be 34% and 46%, respectively. For American consumers, iPhones made in China would now cost much more compared to the price of an Indian-made iPhone.
Additionally, India’s textile and apparel exports to the US stand at $11 billion. These sectors had to deal with an average tariff of 9% up until now; that will now triple. The largest textile and apparel exporters, however, are once again in a far worse position; aside from the 46% and 34% on China and Vietnam, respectively, the blanket reciprocal duty on Bangladesh is 37%, Sri Lanka is 44%, and Thailand is 36%. Even in the case of gems and jewelry, particularly, the diamond industry, which is likely to be the worst hit among India’s key exports to the US – China, Thailand, and Hong Kong have been slapped with bigger tariff hikes. India’s exports of shrimp and carpet exports will also face the brunt of the 27% additional import duties announced by the US.
Consequences
High tariffs will inevitably result in higher prices in the US. As a result, the aggregate demand and, inevitably, output will decline. It will result in a slowdown in those economies as well as a decrease in exports from other nations. The repercussions will be felt by all the trading partners on a worldwide scale.
Both fiscal and monetary policies will find it difficult to combat this ‘stagflationary’ situation.
Additionally, the United States has cut down on the number of jobs in the health and education sectors. The Department of Government Efficiency, headed by Elon Musk, has made matters worse by rapidly downscaling government departments. Financial markets have been impacted by all of this, including stock markets, currency values, gold prices, and investments. After the U.S. Tariffs announcement, the Indian stock market faced a ‘Black Monday’ with the Nifty 50 falling by 3.24% and the Sensex dropping by 2.95% on 7th April 2025.
India’s foreign exchange reserves have decreased, and the rupee has lost value relative to the dollar. The stock markets are indicating that Trump’s protectionist policies will worsen the crisis rather than lessen it. More stringent US immigration regulations will reduce the workforce availability and restrict the operations of Indian service providers who deploy their staff to the US. Despite service firms gradually increasing local US recruitment, many still depend on skilled H1B visa workers for extended US assignments, making them vulnerable to immigration policy modifications and increased operational costs.
The goal of tariffs is to rebuild domestic manufacturing. The Patagonian toothfish, the main export from the Falkland Islands, was subject to a high tariff of 42%. Madagascar, a global supplier of vanilla, received an astounding 47%. Reducing these imports won’t save Michigan car factories or reopen steel mills in Pennsylvania. The logic seems to be very irrational. In fact, the economies of East Asia, Canada, and Mexico account for over two-thirds of America’s manufactured imports. It would be far more sensible to concentrate on these countries rather than imposing taxes on everyone if reindustrialization is the aim.
Is there a possible opportunity for India?
Can India cash in? There are too many factors to consider before coming to a definite solution.
The US consumer’s sensitivity to price changes is the most significant among them. US consumers have historically been price-sensitive. Nowadays, the majority of customers have a set budget within which to work. According to a study by McKinsey & Company, 74% of American consumers are moving to less expensive brands to save money.
If Trump’s tariffs stay, then all imports into the US will become significantly more expensive. US consumers will reduce their consumption because they are restricted by their limited budgets. In such a situation, any price change could lead to a sharp fall in demand. Indian exporters must lower prices to increase market share, but due to limited profit margins, this will be challenging. The exporters should not be completely disheartened. There is something more to this story.
These tariffs on Indian products may not be in place for long as the country hopes to strike a $500 billion Bilateral Trade Agreement (BTA) with the US, as was announced after Prime Minister Modi met Mr. Trump in February 2025. According to reports, a three-part agreement is being negotiated, with the first phase probably being completed before July, which is when the 90-day tariff respite expires. The trade deal will cover a range of issues of mutual interest that include deepening supply chain integration, increased investments, and technology transfers. In that case, India may benefit if Apple reconsiders its production strategy, as the company had previously planned to produce iPhones in Vietnam, where iPads, AirPods, and Apple Watches are already produced. A handsome majority of Indian companies have little direct exposure to the US market, according to credit rating agency Moody’s, but they are nevertheless vulnerable to disruptions in trade flows and potential regional supply increases, especially from China.
India’s Reaction
To begin with, India didn’t impose any form of counter tariffs.
Since February, India has ramped up efforts to win Trump’s favor – pledging $25bn in US energy imports, courting Washington as a top defense supplier, and exploring F-35 fighter deals. To ease trade tensions, it scrapped the 6% digital ad tax, cut bourbon whiskey tariffs to 100% from 150%, and slashed duties on luxury cars and solar cells. Meanwhile, Elon Musk’s Starlink nears final approval.
However, the latest US Trade Representative report reveals Washington’s dissatisfaction with India’s trade practices, expressing concerns that India, despite being a friend, is not treating the US right. Trump is using a ‘discounted reciprocal tariff’ relative to what USA has imposed on India’s Asian rivals’ tariffs as leverage in trade talks with India. Also, concerns remain. India’s plan to impose retaliatory import duties on certain US goods in response to the American tariffs on steel and aluminum could jeopardize the ongoing Indo-US bilateral talks.
Trump’s Consistent “Political Inconsistency”: India has to be careful
India should be especially cautious about Donald Trump due to the policy inconsistencies he demonstrated during key security events, notably during the Pahalgam terror attack and its aftermath. At first, the Trump administration appeared to stand firmly with India, condemning terrorism and reaffirming its support for India’s right to self-defense. However, in a matter of days, Trump unexpectedly shifted tone, signaling a desire to mediate between India and Pakistan, and even softening rhetoric toward Islamabad despite its long-standing record of harboring terrorist groups.
This abrupt change not only undermined India’s diplomatic position but also raised alarms about the reliability of U.S. support under Trump. For a country like India, which has sought to deepen its strategic ties with the US through defense deals, intelligence sharing, energy, semiconductor manufacturing, and other collaborations in the areas of artificial intelligence, space and satellite technology, health and pharma, etc., such unpredictability is problematic. It calls into question the durability of any commitment made by Washington under a Trump-led administration.
Trump’s behavior during this episode also mirrored a broader trend in his foreign policy: a transactional, ad-hoc approach to international relations. Whether with NATO allies, Japan, or the EU, Trump repeatedly demonstrated a willingness to abandon traditional partners or change long-held U.S. positions in pursuit of short-term tactical or political gain.
For India, this means that support from a Trump White House can be volatile and conditional, rather than strategic and stable. In a region as complex and volatile as South Asia, where India faces persistent cross-border terrorism and strategic competition, such inconsistency from a key global partner can weaken India’s position on the world stage. It reinforces the need for India to maintain strategic autonomy, diversify its partnerships, and prepare for policy shifts that may not always align with long-term security goals.
Conclusion
All said and done, these reciprocal tariffs will impact India’s job market, even if it is for a short time. Gaining a competitive edge over China or Vietnam won’t happen overnight. In this context, we should reduce our reliance on export-led growth and instead harness the potential of domestic demand. Global Trade Research Initiative (GTRI) has pointed out in their report that India’s potential to become a global manufacturing and export hub depends on improving the ‘ease of doing business’, investing more in logistics and infrastructure, and maintaining policy stability.
India will have to find a way to align strategically with — and resistance to — Trump’s America in this highly uncertain geopolitical environment while also balancing competition with and cooperation with the likes of China and Vietnam.