On April 2, 2025, Trump announced a series of reciprocal tariffs targeting various countries, notably India, as part of his “Liberation Day” trade policy aimed at correcting perceived global trade imbalances. India is set to face a substantial 26% tariff on its exports to the U.S., effective April 9, 2025. This rate is approximately half of the 52% tariff Trump claims India imposes on U.S. goods, highlighting a significant disparity that the administration seeks to address.
Starting April 5, a baseline 10% tariff on all imports will take effect, along with additional country-specific tariffs for nations with significant trade deficits with the U.S. India, notably, holds a $46 billion trade surplus with the U.S. and thus becomes a focal point of these measures. In 2024, India’s exports to its largest trading partner, the U.S., were valued at $74 billion. The newly imposed 26% tariff threatens to inflict export losses projected between $2 billion and $7 billion annually, depending on sectorial adaptations. This impact could shave off 0.3% to 0.4% from India’s GDP growth, expected to be around 6.5% to 6.6% for fiscal 2025. While any reduction in growth is concerning, it’s essential to put these figures into perspective: India’s exports to the U.S. account for only about 2.2% of its GDP, especially when compared to Vietnam, where exports represent a staggering 25% of GDP. Hence, the potential impact on India’s economy may be less severe than it seems.
Moreover, it’s crucial to consider the implications for the U.S. economy as well. The imposition of these tariffs and trade barriers could fuel inflation, drive up prices, and create significant supply imbalances. Building self-sufficiency in manufacturing is a monumental task that may take decades and require considerable capital influx, raising the question: can the U.S. sustain its manufacturing capabilities amid rising costs?
Interestingly, India stands to gain if its major competitors like China and Vietnam experience heightened tariffs—34% and 46%, respectively. This scenario presents a golden opportunity for India to capture increased market share in the U.S. across key sectors such as textiles, footwear, and electronics.
Despite the looming tariff challenges, global economists, including the IMF, continue to project India as the fastest-growing major economy, poised to ascend to the position of the third-largest economy globally. This growth trajectory is attributed to India’s diversified trade portfolio and robust internal consumption.
Trump’s implementation of a 26% tariff on India reflects a broader strategy aimed at “rebalancing” the trade. However, its impact on India seems manageable. Key sectors like pharmaceuticals, jewellery, and agriculture will face hurdles, yet India’s relative insulation, owing to its lower dependence on exports and strategic diversification, places it in a more advantageous position than many of its Asian counterparts. The ultimate test will be whether India can effectively negotiate with the U.S. and capitalise on opportunities arising from global trade shifts. While immediate disruptions are expected, India’s long-term resilience and adaptability could mitigate damage and potentially yield gains in specific industries.
The imposition of higher reciprocal tariffs by the US on several Asian countries, including China, Vietnam, Thailand, Taiwan and Bangladesh, present an opportunity for India to strengthen its position in global trade and manufacturing.