In early 2025, former U.S. President Donald Trump made headlines once again with a bold move in the world of international trade. His administration announced the implementation of reciprocal tariffs on several countries, including India, in a bid to address longstanding trade imbalances and promote fairer practices.
What are Reciprocal Tariffs??
Reciprocal Tariffs are taxes imposed by a country in response to similar tariffs or high import duties by another country. It is a tit-for-tat trade policy where one country increases duties to counter another’s trade restrictions.
A White House document on Friday showed that the Trump government’s reciprocal tariffs have been revised for at least 14 countries, including India.
India’s rate was originally listed at 27 per cent, as against the 26 per cent shown previously by Trump during the announcement on April 2. However, the latest annex document shows that the tariffs have been revised down to 26 percent.
New tariff structure on Indian goods
- Existing tariffs: 25% on steel, aluminum, and auto parts.
- New tariffs: April 5-8: A 10% baseline tariff on remaining Indian goods; April 9 onwards 26% tariffs will apply to India-specific imports.
- Exempted sectors: Pharmaceuticals, semiconductors, energy products (oil, gas, coal, LNG), and copper.
Reciprocal tariff on Asian countries:
Impact of Trump’s 26% Tariff on Indian Imports
1. Industrials
Despite being a key component of US imports, Indian industrial engineering exports to the US are relatively modest. Few Indian companies derive more than 7-8% of their sales from the US. Items like motors, wires, and cables are affected, but overall, the direct impact remains limited.
2. Information Technology (IT) Services
With nearly 55% of IT service revenue stemming from the US, this sector is among the most vulnerable. While services are not directly taxed under the executive order, the slowdown in US growth and potential recession risk could suppress discretionary IT spending. Analysts predict a 200-300 basis point drop in IT sector growth in FY26.
3. Oil & Gas
No direct impact is anticipated, thanks to tariff exemptions for energy products. However, broader macroeconomic repercussions such as a global GDP slowdown could push oil prices lower. The forecast remains around $70/barrel. On 8th April 2025, Excise Duty on petrol and diesel is increased by Rs. 2.
4. Textiles and Apparel
With $8 billion worth of textile exports to the US in 2024, this sector is bracing for a significant impact. The price-sensitive nature of garments, combined with thin profit margins, makes the industry particularly vulnerable. A 26% duty could render Indian products uncompetitive. However, there’s a silver lining: reciprocal tariffs on Bangladesh (37%), Sri Lanka (44%), and Vietnam (47%) are higher. This differential could potentially improve India’s relative competitiveness in the medium term.
5. Pharmaceuticals
A crucial exemption spares pharmaceuticals from the new tariffs, reflecting their strategic importance. India remains a global leader in generics, and US dependence on Indian APIs and formulations continues. This would come as a relief for companies like Sun Pharma (33% of revenue from the US), Dr Reddy’s Laboratories (48.5%), and Aurobindo Pharma(48.3%) and such other pharma companies.
What does India export, import from the US?
In Nutshell,
- This is a typical move by US President like what initiative we had in India i.e. Make in India. US President Donald Trump used slogan in presidential campaigns “Make America Great Again”
- India’s reciprocal tariffs stand at 26% which is still on a lower side if we see the Annexure where these tariffs are levied upto 54% for other Asian countries.
- As global uncertainty looms, exporters are also exploring collective bargaining strategies with American clients to offset losses.
- Economists estimate that the tariffs could shave off 20-40 basis points i.e. 0.20%-0.40% from India’s FY 2025-26 GDP growth. No Significant Impact.
- However, the situation may catalyse key reforms, such as slashing tariffs, accelerating trade deals, and opening for regional FDI.
- Moreover, the rise in tariffs may encourage Indian companies to focus more on strengthening domestic manufacturing capabilities. This shift could lead to increased local production and the exploration of new markets beyond the US, fostering a more resilient economic environment.
- Though it looks a “Tarrif-ied” move at the beginning of new fiscal year in India, but there is a always a ‘Blessing in Disguise’ and now it is upto the Indian Government, Concerned Ministries, Exporters and Industry Giants to pave the way for easing tariffs through Bilateral Trade Agreements which can potentially benefit the exporters in Future.
Prepared By –
CA Sachin Rokade
Yash Talatkar