On April 2, U.S. President Donald Trump announced a sweeping tariff policy targeting more than 60 countries, calling it “Liberation Day” for the U.S. economy. In India, it was already April 3 when the details became public. The policy revolves around “reciprocal” tariffs, a concept that aims to match or exceed the tariffs imposed by other countries on U.S. goods. Among the nations singled out, India was a key focus, with Trump declaring that the U.S. would impose a 26 percent tariff on Indian exports in response to what he claimed was a 52 percent tariff levied by India on U.S. goods.
This announcement comes at a critical time for India, which has been working to deepen trade ties with the U.S. as part of its broader economic diplomacy strategy. India has sought greater market access in sectors like pharmaceuticals, textiles, and technology, while also negotiating tariff reductions on U.S. agricultural and industrial products. Trump’s decision to impose higher duties on Indian goods could disrupt this progress and force India to reconsider its trade approach with the U.S.
Understanding Reciprocal Tariffs
The concept of reciprocal tariffs is straightforward: If a foreign country imposes a certain percentage of tariff on U.S. goods, the U.S. will impose the same or a higher percentage on that country’s exports.
Trump’s argument is that the U.S. has, for decades, allowed other nations to benefit from low tariffs while charging U.S. exporters significantly higher rates. Under this policy, Trump aims to correct what he calls an “unfair trade imbalance” by ensuring that every country pays the same or more than what it charges the U.S. The administration claimed it was also taking non-tariff barriers into account.
Although the Trump administration has labeled these tariffs “reciprocal,” analysts have pointed out that they aren’t. Instead, the numbers appear to have been derived from nations’ balance of trade with the U.S. As CNN Business’ Executive Editor David Goldman explained, “the Trump administration seems to have used quite a simple calculation: the country’s trade deficit divided by its exports to the United States times 1/2. That’s it.”
Key Sectors Affected
India has a diverse portfolio of exports to the United States, with sectors such as pharmaceuticals, textiles, gems and jewelry, information technology, and auto parts playing a vital role. Trump’s 26 percent tariff on Indian exports could have a significant impact on these industries, making Indian products less competitive in the U.S. market.
Pharmaceuticals: India is one of the world’s largest suppliers of generic drugs, with 40 percent of all generic medicines used in the U.S. coming from Indian manufacturers. Increased tariffs could raise costs for U.S. consumers and pharmaceutical companies, reducing demand for Indian-made medications. Indian pharmaceutical firms, which already operate on thin margins, could face profitability challenges.
Textiles and apparel: The U.S. is a major importer of Indian textiles, garments, and cotton products. Higher tariffs could force Indian textile exporters to either absorb costs (reducing their profit margins) or pass the costs to consumers, making them less competitive. This move could benefit competing nations such as Bangladesh and Vietnam, which are key textile exporters to the U.S. However, both have also been subject to the new tariffs: Bangladesh at 37 percent and Vietnam at 46 percent.
Information technology and services: The Indian IT sector generates billions of dollars in revenue from the U.S. through software exports, outsourcing, and business consulting services. While services are not directly affected by the Trump tariffs, related hardware and software exports could become more expensive, affecting companies like Infosys, TCS, and Wipro. If tensions escalate, India might face stricter visa regulations for Indian tech professionals working in the U.S. under H-1B and L-1 visas.
Automobile components: India exports a substantial amount of auto parts and two-wheelers to the U.S. Trump has imposed a 25 percent tariff on all imported vehicles and auto-related goods, which could hurt Indian automakers like Tata Motors, Mahindra, and Bajaj Auto. The higher costs could drive U.S. buyers toward domestic or alternative suppliers, affecting India’s automotive export revenue.
Potential Indian Response
The Indian government has not yet issued an official response, but several options are available. Historically, India has taken reciprocal measures in response to U.S. trade actions. In 2019, when the U.S. removed India from the Generalized System of Preferences, India retaliated by increasing tariffs on 28 American products, including almonds, apples, and medical equipment.
If India chooses to retaliate, it could impose higher duties on U.S. agricultural products, industrial machinery, and tech imports. Additionally, India might explore new trade agreements to diversify its export markets, reducing dependence on the U.S. as a key trade partner. Alternatively, India could negotiate tariff reductions with the U.S. by emphasizing the steps it has already taken to lower tariffs on certain American goods. Recent efforts by India’s Finance Minister Nirmala Sitharaman to reduce high duties on luxury goods might be leveraged as a bargaining tool in discussions with U.S. trade representatives.
Beyond trade, the India-U.S. strategic partnership spans areas like defense, digital trade, and infrastructure development. A prolonged trade dispute could introduce friction into broader bilateral relations, affecting ongoing discussions on defense cooperation, clean energy, and the Quad.
India is a major buyer of U.S. military equipment, including fighter jets and missile systems. Trade tensions could spill over into defense negotiations.
In addition, the U.S. has been encouraging India to adopt U.S.-made green energy technologies. Increased tariffs on tech-related imports could hinder clean energy collaborations.
And finally, India and the U.S. are key members of the Quad (with Japan and Australia), aimed at countering China’s influence. A trade conflict could weaken diplomatic coordination on Indo-Pacific strategy.
Global Trade and Competitive Shifts
If protectionist policies continue under a potential Trump administration, India may seek to strengthen ties with alternative trade partners such as ASEAN, the European Union, and Latin America. This could lead to greater regional trade integration, potentially reducing India’s reliance on the U.S. market.
Additionally, other countries may benefit from this situation. If Indian exports to the U.S. become more expensive, U.S. importers might shift to alternative suppliers, affecting India’s market share.
Trump’s new tariff policy marks a significant challenge for India’s trade and economic policy. While supporters of the tariffs believe that they will create a fairer trade system, critics argue that they could trigger retaliatory actions and slow global economic growth.
India now faces a crucial decision of whether to negotiate and attempt to ease tariffs through diplomatic channels or retaliate by imposing its own counter-tariffs on U.S. goods. Whatever path it chooses, the next few months could be crucial in determining the future trajectory of U.S.-India trade relations.