Explained | Possible impact of Trump's reciprocal tariffs on India

New Delhi: Indian industry and government officials are uncertain whether US President Donald Trump will proceed with his threat to impose reciprocal tariffs on its key trading partners, including India, on April 2.

According to a senior government official, the domestic industry is "paranoid" and has been sending communications to the government, seeking protection against the impacts of these tariffs.

Stakeholders are hopeful that America may defer its decision to impose reciprocal tariffs from April 2, as India is one of the few countries with which the US has decided to negotiate a trade agreement.

Here is a list of Q & As (questions and answers) to explain these issues and implications of the US move:

What is the USA's reciprocal trade and tariffs plan?

The plan allows the US to raise tariffs/import duties on countries with which it has a trade deficit. Trump claims that the US charges low tariffs, while other countries impose higher duties and trade barriers on American goods. This, he says, leads to a $1 trillion trade deficit that also harms American industries and workers.

What is the volume of bilateral trade between India and the US?

From 2021-22 to 2023-24, the US was the largest trading partner of India. The US accounts for about 18 per cent of India's total goods exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade.

With India, America has a trade surplus (difference between imports and exports), of $35.32 billion in goods in 2023-24. It was $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.

What is the quantum of reciprocal tariffs that can be imposed on Indian exports to the US?

It is still unclear how the tariffs will be applied - whether at the product level, sector level, or country level.

What are the views of experts on these tariffs?

GTRI founder Ajay Srivastava has said the actual import tariffs on US exports to India are significantly lower than often claimed. If the US adopts a fair trade approach, Indian industries can continue exporting to the US with minimal disruptions, fostering a more balanced and stable trade relationship.

He has also said that these tariffs have nothing to do with reciprocity, as trade involves diverse products. For instance, India may be a key exporter of product 'X' to America but the US could be a major exporter of item 'Y'. Similarly, despite having a trade pact with Mexico and Canada (USMCA), the US is imposing additional tariffs on their products.

To assess the potential impact, think tank GTRI has analysed reciprocal tariffs at four levels:

Country level – A uniform tariff on all Indian exports:

If the US imposes a single tariff on all products from India, it would be an additional 4.9 per cent. Currently, US goods face a weighted average tariff of 7.7 per cent in India, while Indian exports to the US attract only 2.8 per cent, leading to a 4.9 per cent difference.

Separate tariffs for agriculture and industry:

If the US chose to impose separate tariffs, the additional tariff for farm products would be 32.4 per cent and on industrial products 3.3 per cent.

Indian farm exports to the US currently face a 5.3 per cent duty, whereas US farm exports to India face a much higher 37.7 per cent, creating a 32.4 per cent gap.

On the other hand, for industrial products, US exports to India face a 5.9 per cent weighted average tariff, while Indian industrial exports to the US face only 2.6 per cent, resulting in a 3.3 per cent gap.

Sector-level tariffs:

At the broad sector level, the potential tariff gaps between India and the US vary across the sectors.

The gap is 8.6 per cent for chemicals and pharmaceuticals, 5.6 per cent for plastics, 1.4 per cent for textiles and clothing, 13.3 per cent for diamonds, gold, and jewellery, 2.5 per cent for iron, steel, and base metals, 5.3 per cent for machinery and computers, 7.2 per cent for electronics, and 23.1 per cent for automobiles and auto components.

The higher the tariff gap, the worse affected a sector will be.

India's exports to the US span 30 sectors, with six in agriculture and 24 in industry, each facing different tariff impacts.

Agriculture:

Srivastava said that the hardest-hit sector will be fish, meat, and processed seafood, with $2.58 billion in exports facing a 27.83 per cent tariff differential. Shrimp, a major export, will become significantly less competitive.

Processed food, sugar, and cocoa exports worth $1.03 billion will also struggle with a 24.99 per cent tariff increase, making Indian snacks and confectionery expensive in the US.

Cereals, vegetables, fruits, and spices, valued at $1.91 billion, face a 5.72 per cent tariff differential, impacting rice and spice shipments.

Dairy products worth $181.49 million will be severely affected by a 38.23 per cent tariff differential, making ghee, butter, and milk powder costlier, reducing their market share.

Edible oils with $199.75 million in exports face a 10.67 per cent tariff, increasing costs for coconut and mustard oil.

Alcohol, wines, and spirits face the highest tariff hike at 122.10 per cent, though exports are only $19.20 million.

Live animals and animal products face a 27.75 per cent tariff differential on $10.31 million in exports.

Industrial goods:

The pharmaceutical sector, India's largest industrial export, worth $12.72 billion, faces a 10.90 per cent tariff differential, increasing costs for generic medicines and speciality drugs.

Diamonds, gold, and silver with $11.88 billion in exports will attract a 13.32 per cent tariff hike, raising jewellery prices and reducing competitiveness.

Electrical, telecom, and electronics exports worth $14.39 billion face a 7.24 per cent tariff, affecting iPhones and other communication devices.

Machinery, boiler, turbine, and computer exports valued at $7.10 billion will see a 5.29 per cent tariff hike, impacting India's engineering exports.

Chemicals (excluding pharma) worth $5.71 billion will be affected by a 6.05 per cent tariff, reducing the US demand for Indian speciality chemicals.

Textiles, fabrics, yarn, and carpets with $2.76 billion in exports face a 6.59 per cent tariff, making Indian textiles expensive.

Rubber products, including tyres and belts, worth $1.06 billion, will face a 7.76 per cent tariff, while paper and wood articles, worth $969.65 million, will have a 7.87 per cent tariff.

Ceramic, glass, and stone products with $1.71 billion in exports will face an 8.27 per cent tariff, impacting the demand.

Footwear, with $457.66 million in exports, faces a high 15.56 per cent tariff differential.

Minimal or no impact sectors:

Some sectors will not face additional tariffs as the US already imposes higher duties.

Ores, minerals, and petroleum worth $3.33 billion have a negative tariff differential of - 4.36 per cent, meaning no new tariffs will be applied.

Similarly, garments, with $4.93 billion in exports, have a - 4.62 per cent differential, keeping tariffs unchanged.

Is it simple to calculate the impact of these tariffs?

Experts say it is not easy, because as indicated, the US may also factor in non-tariff barriers, VAT (GST), and currency impacts in its reciprocal tariff policy.