USA's reciprocal tariffs create uncertainties; trade deal may help boost ties: Experts

New Delhi: US President Donald Trump's announcement on imposing reciprocal tariffs has created an uncertain trade environment between India and America, though the plan for a major trade deal could help promote two-way commerce, experts say.

They said that India should take steps cautiously for protecting domestic industries and expanding exports to the US.

After talks with Prime Minister Narendra Modi in Washington, Trump has announced that India will buy more oil, gas and military hardware from America to bring down the trade deficit but asserted that Washington will not spare New Delhi from reciprocal tariffs.

Economic think tank Global Trade Research Initiative (GTRI) said that the two leaders talked about having a trade agreement soon, but the details remain unclear.

The US, GTRI Founder Ajay Srivastava said, is not clear if the reciprocal tariff applies to specific products or entire sectors.

Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said that India must strike a balance between protecting domestic industries and expanding exports to the US through targeted diplomacy.

"We should negotiate exemptions for key sectors, highlighting recent tariff concessions on US goods as leverage. A limited preferential trade agreement can further ease tariff concerns without requiring a full-scale FTA (free trade agreement)," he said.

Trade policy expert Abhijit Das said that the announcement of reciprocal tariffs has created uncertainty in trade relations between the two countries and that these duties "really shred" the World Trade Organisation (WTO) rule book.

"Reciprocal tariff is a highly problematic issue because there are many variables which the US will take into account while deciding their customs duties," Das said, adding customs duties are just one of the variables.

It can also include exchange rate, non-tariff barriers, subsidies, hurdles in government procurement, protection of intellectual property.

"So how the reciprocal tariffs will be quantified and converted into final tariff is a big question and it needs more analysis," he said.

Regarding the trade deal, Das said there was no direct reference to the start of formal negotiations, adding, "I presume it is more about addressing concerns and interests related to a handful of products." Sharing similar views, international trade experts Biswajit Dhar said as part of imposing reciprocal tariffs, the Trump administration may force India to reduce duties on sectors like agriculture else the US would impose higher duties on Indian goods.

"But these announcements have created an uncertain trade environment, and our exporter should be worried because the US is the largest market for them," Dhar said, adding India needs to watch the terms of the trade deal before taking any stand.

"We need to tread cautiously with this deal," he said.

The US president, at a joint media briefing with the Indian prime minister following the talks, also said that both sides are looking at striking a major trade deal soon while calling import duties imposed by India on certain US products as "very unfair" and "strong".

"Whatever India charges, we will charge them," Trump has said, adding "We are being reciprocal with India." The Modi-Trump meeting took place hours after the US President announced a new reciprocal tariff policy for all the trading partners of the US in the latest in a series of such actions initiated by his administration.

In his remarks, Trump said he and PM Modi have reached an agreement that could potentially make the US the "number one supplier" of oil and gas to India, suggesting it to be part of measures to bring down the US trade deficit with India that stands at around Rs 3,90,384 crore ($45 billion).

Trade Deal:

During the first term of President Donald Trump, India and the US had discussed a mini trade deal to boost economic ties. It was shelved by the Joe Biden administration as they were not in favour of a free trade agreement.

According to international trade experts, a trade deal between a developing and a developed nation should cover the maximum number of goods traded between them, as per WTO norms. A mini trade deal should have a roadmap to eventually convert it into a comprehensive free trade agreement.

WTO deals with global trade. Both India and the US are members of the Geneva-based body.

Bilateral Trade:

During April-November 2024-25, the US was the second largest trading partner of India with Rs 7,15,943 crore ($82.52 billion) bilateral trade in goods Rs 4,59,085 crore ($52.89 billion) worth of exports, Rs 2,57,087 crore ($29.63 billion) of imports and Rs 2,01,806 crore ($23.26 billion) trade surplus. During 2021-24, America was the largest trading partner of India.

According to GTRI, the top 100 US export products account for 75 per cent of India's total imports from that country.

While India's simple average tariff is 17 per cent, the actual duties on key US imports are much lower.

In 2024, India's main exports to the US included drug formulations, biological Rs 70,290 crore ($8.1 billion), telecom instruments Rs 56,405 crore ($6.5 billion), precious and semi-precious stones Rs 46,010 crore ($5.3 billion), petroleum products Rs 35,596 crore ($4.1 billion), gold and other precious metal jewellery Rs 27,770 crore ($3.2 billion), ready-made garments of cotton including accessories Rs 24,308 crore ($2.8 billion), and products of iron and steel Rs 23,430 crore ($2.7 billion).

Imports included crude oil Rs 39,051 crore ($4.5 billion), petroleum products Rs 31,238 crore ($3.6 billion), coal, coke Rs 29,518 crore ($3.4 billion), cut and polished diamonds Rs 22,572 crore ($2.6 billion), electric machinery Rs 12,148 crore ($1.4 billion), aircrafts, space crafts and parts Rs 11,280 crore ($1.3 billion), and gold Rs 11,284 crore ($1.3 billion).

GTRI has said that petroleum crude faces a minimal duty of Re 1 per tonne, while cut and polished diamonds are taxed at zero per cent, as most are reimporting. Other major imports, including coking coal, aeroplanes over 15,000 kg, steam coal, and liquefied natural gas carry a modest 2.5 per cent duty.

Gold in unwrought non-monetary forms is taxed at 6 per cent, while aluminium scrap enjoys nil duty. Almonds are subject to a duty at Rs 35 per kg.