US President Donald Trump finally acted on his reciprocal tariff threat, slapping tariffs on imported goods from friends and foes alike, but to varying degree.
India finds itself, in a sort of middle position, with tariffs of 26 per cent. A baseline 10 per cent tariff would come into effect on Saturday with the higher reciprocal tariff effective April 9.
The tariffs slapped on India are more than two-and-a-half times of the existing average tariff differential point economists, and also higher than the 20 per cent duty announced for European Union, 24 per cent for Japan and 25 per cent for South Korea. Broadly looking, this development is a clear setback for India, which had already reduced tariffs on certain US imports like high-end motorcycles and has been in trade negotiations with US.
But several Asian neighbours have been slapped with significantly higher tariffs and that should mean relative competitive advantage for India certain sectors, like textile, footwear etc. China has been slapped with a 34 per cent tariff, which is on top of 20 per cent tariffs announced earlier. Vietnam, another major exporter from Asia, has been hit with 46 per cent tariff. Bangladesh, a major garment exporter, has been levied 37 per cent tariff.
"Net-net, it appears India's export competitiveness to the US market stands far less impacted on a relative basis. Yet our industry should make concerted efforts to increase export efficiency and value addition, to mitigate impact of these tarriffs," said Sanjay Nayar, president of industry Assocham.
India has typically had a trade surplus (difference between imports and exports) with the United States. Last year, bilateral trade between the two countries was said to be around $124 billion, with India having a trade surplus of around $37 billion.
The disruption from the tariff would be sectorally uneven and contextually mitigated by India's emergent relative tariff advantage over Asian peers, noted Arsh Mogre, economist at PL Capital Institutional Equities Research.
"For high-exposure verticals like textiles, footwear, and electronics, the move paradoxically enhances India’s competitiveness in a post-China plus 1 global sourcing landscape—where Vietnam, Cambodia, and Thailand now face 10–20 percentage-point steeper barriers. Moreover, in sectors like auto components, chemicals, and electronics, India retains cost resilience versus China, which now contends with a prohibitive 54 per cent effective tariff wall," Mogre noted.
Radhika Rao, senior economist at DBS Bank, also feels India retains comparative advantage in specific sectors like electronics manufacturing for now as key competitor countries face higher tariffs.
India's pharmaceutical sector enjoys protection from reciprocal tariffs, keeping it insulated from tariff increase, pointed out Saurabh Agarwal, tax partner at EY India.
Also, India's lower tariffs compared with Asian peers creates possibility of growth potential for India's telecommunication and textile manufacturing sectors, he felt.
"Although short-term export fluctuations may occur, the mid-to-long term outlook suggests possible export growth for India (contingent on final international trade negotiations with the US)," Agarwal added.
While there may be advantages to Asian peers, the tariffs have raised the risk of massive disruption in global trade and there is a clear risk of trade tensions escalating. EU and China have already talked of a response. Other countries may follow suit.
Importantly, with imported goods getting expensive due to the tariffs, US consumption could slow down; the risks of a possible recession in the US have gone up significantly. That will have a wider impact on global economy just about recovering from post-COVID inflationary shock.
"Trade-led US recession takes everyone down. There is no real winner – not even relative!," noted Madhavi Arora, chief economist at Emkay Global Financial Services.
"US recession probability rises dramatically. Persisting trade-tariff noises and policy uncertainty will be shaping things for worse - a hostile environment for investment spending," added Arora.
