The Trump administration imposes a 26% tariff on imports from India, slightly higher than the EU’s 20% tax, Japan’s 24% and South Korea’s 25%. China’s hit rate is the highest interest rate for major U.S. trading partners and now faces tariffs of at least 54% on many commodities.
Tariffs are a setback for the Indian government, which attempts to block new taxes through concessions to the issues at the center of Trump’s agenda. During Prime Minister Narendra Modi’s visit to Washington in February, the two countries agreed to work to reach a trade agreement this year.
Please read also: India faces “discount” of our 26% tariffs; Trump hits 34% in China
“India is very, very difficult,” Trump said in announcing tariffs at the White House on Wednesday. “The Prime Minister just left and he is my good friend. But I said, you are my friend, but you are not treating us. They charge us 52% of the fee.”
According to a Bloomberg report, levy could increase trade deals with Washington to compensate for pressure on trade deals with Washington. The move comes after the Trump administration has been saying India will be the target of the new duty as New Delhi charges some of the highest tariffs on any major economies. Trump has repeatedly criticized India’s high taxes and branded the country as the “tariff king.”Please read also: What are Trump’s new reciprocity tariffs and how will they affect trade?
The pressure in India
The White House said the U.S. tariff rate was the lowest before the reciprocity announcement, with an average fee of 3.3%, while India’s tariff rate was 17%.
In the past few weeks, India has overhauled its tariff regime, reducing import duties on about 8,500 industrial items, including on famous American goods such as bourbon and high-end motorcycles made by Harley-Davidson Inc., which has met the long-standing complaint of the U.S. president.
India also expressed its willingness to buy more U.S. oil, liquefied natural gas and defense equipment to narrow its bilateral trade surplus. Officials also said there would be more tariffs on the cuts.
Please read also: Donald Trump confirms automatic tariffs of 25% on all foreign-made cars
The levy will increase pressure on India to make its deeper cuts to the tariff regime. As part of the discussion, India is considering U.S. layoffs on U.S. agricultural products. Officials are optimistic about the outcome’s favorable outcome after these concessions.
The new responsibilities may also prompt New Delhi to succumb to the U.S. need to remove non-tariff trade barriers, such as opaque import restrictions and licensing requirements for certain imports.
During the first term of the U.S. president, Trump and Modi held several meetings. The United States of several U.S. governments have cultivated India as a bastion of regional partners and a counter-option of more confident China.
Impact on India’s economy
Nigel Green, CEO of Global Financial Consulting, told Reuters that the U.S. responsibilities could bring India closer to alternative trading groups and strategic partners.
“This makes India’s exports immediately less competitive … Just like India is trying to attract global capital that flees China, investor confidence makes investors confident,” he said.
However, a recent SBI study said the impact of Trump’s tariffs is likely to be restricted. Several global research and rating companies and banks such as Goldman Sachs, Nomura, Morgan Stanley and Fitch responded to this sentiment.
According to SBI analysis, the potential impact of U.S. tariff reciprocity on Indian exports will be moderate. It is expected to decrease by about 3% to 3.5%.
The report shows that India’s export diversification, emphasis on increasing value, exploration of alternative markets, and strategic approaches to developing new trade routes from Europe to the United States in the Middle East will offset the impact of U.S. tariffs.
Goldman Sachs noted that India’s overall exports to the United States are one of the lowest among its emerging market peers. Fitch said India’s low reliance on external demand makes it “somewhat insulated”.
Morgan Stanley said: “Although India faces direct tariff risks, we have always emphasized that the greater impact of tariffs on growth may be the weaker policy uncertainty of the confidence of weaker companies through indirect transmission channels and the weaker confidence of CAPEX in CAPEX and the spillover of trade cycles. From this perspective, from this perspective, competitiveness at the domestic lows is the least reasonable and the least reasonable option.
Despite the impact of Trump’s tariff actions, global economists believe that India will continue to be the fastest-growing economy in the world. According to the IMF’s world economic outlook in January, India will become the world’s third largest economy in the next few years.
According to recent discoveries by Nomura, India is one of the most resilient economies in Asia’s ongoing trade conflicts.
Ajay Sahai, director-general of the Indian Federal Export Organization, said India’s reciprocity tariffs are lower than those of major competitors such as Vietnam and Bangladesh, which could help the Indian apparel and footwear sector.
India-US trade relations
Prime Minister PM Modi, one of the first foreign leaders to meet with Trump after returning to the Oval Office, recently praised the U.S. president, highlighting their close personal connections. The two countries agreed to end the first deal in the trade deal this fall and raise bilateral trade to $500 billion by 2030, up from $127 billion in 2023.
From 2021-22 to 2023-24, the United States is India’s largest trading partner. The United States accounts for about 18% of India’s total cargo exports, imports are 6.22%, and bilateral trade accounts for 10.73%.
Related to India, the U.S. trade surplus (the difference between imports and exports) was $35.32 billion in 2023-24. $27.7 billion in 2022-23, $32.85 billion in 2021-22, $22.73 billion in 2020-21, and $17.26 billion in 2019-20.
A complete list of countries and how many reciprocal tariffs Trump imposes:
