India Needs To Play Its Cards Well Amid Threat Of Reciprocal Tariffs

US President Donald Trump’s threat of reciprocal tariffs has been sending shockwaves across markets, as everyone is left guessing about the likely impact on economies around the world and their relationship with the US. India effectively imposes 9.5 per cent tariffs on US goods, compared to the three per cent that the US administration applies on Indian goods, which leaves India exposed to the threat of increased tariffs on their exports. This would particularly impact sectors like the automobile industry, pharmaceuticals and textiles, all of which are significant to India’s export economy. There are also more challenges like the one facing the steel industry. One must remember that the rupee has weakened against the US dollar as some foreign investment has been pulled due to concerns about a slowdown in Indian economy. In the meanwhile, India is in a position to negotiate with the US and help mitigate these issues and look for opportunities to benefit from new trade relations. India has been proactive on this front, which will be favourable for the Trump administration.

The options that are open include reducing tariffs on certain US imports such as steel, and also reduce barriers for the entry of some companies like Tesla. Whilst there are clear challenges that lie ahead for all global economies in the face of tariffs, and India is no exception, policy adjustments can help mitigate these impacts in the short term and pave way for new terms, which can present opportunities going forward. Implementation of Trump's proposed reciprocal tariffs starting April 2 presents substantial obstacles for India's export-centric industries. It faces targeting by the new policy because it imposes elevated tariffs on American automotive and agricultural products. The revised tariffs will impose annual financial losses between $two billion and $seven billion on India while heavily affecting major export sectors like chemicals, metals, jewellery, automobiles, pharmaceuticals and food products. A seven to 8.2 percentage point tariff differential with the US puts Indian exports vulnerable to retaliatory tariffs. India exported nearly $74 billion worth of goods to the US in 2024, which establishes the US as its biggest trading partner.

However, higher tariffs on Indian products will decrease their competitive edge in the US market, which will hit major labour-intensive sectors hard. Despite benefiting from the US-China trade war, the auto industry may encounter problems because of India's substantial import taxes on American automobiles. Union Commerce minister Piyush Goyal is leading India's trade negotiation efforts to engage with US officials to obtain concessions that could lessen the economic impact. The limited time before the tariffs become active impedes the process of finding an agreement. India shows willingness to reduce industrial product tariffs but sticks to its position on agricultural tariffs to protect its domestic farmers. There is another potential danger. Slapping of reciprocal tariffs could reduce GDP by five to 10 basis points while adding trade unpredictability thereby challenging India's efforts to build stronger relationships with the US. In order to stay in the reckoning, India needs to fasten its seat belt immediately.