Winning Bizness Desk

Mumbai. The U.S. is set to impose reciprocal tariffs on India starting today, April 2. This announcement was made by U.S. President Donald Trump during his address to a joint session of the U.S. Congress on March 5. Trump delivered a record 1 hour 44-minute-long speech, where he emphasized balancing tariffs between countries. The decision implies that the U.S. will impose the same level of tariffs on Indian exports as India levies on American products. If these tariffs come into effect, India could suffer an annual loss of approximately ₹61,000 crore.

Understanding Tariffs and Reciprocal Tariffs

A tariff is a tax imposed on goods imported from other countries. When foreign companies sell products in a country, they have to pay this tax to the government. For example, Tesla’s Cybertruck costs around ₹90 lakh in the U.S., but with a 100% tariff in India, its price doubles to nearly ₹2 crore. Reciprocal tariffs ensure that if one country imposes high tariffs on certain goods, the other country does the same on equivalent products. Trump’s policy aims to bring balance to U.S. trade relations, making sure that the U.S. does not suffer from lower tariff impositions compared to its trading partners.

Why is Trump Implementing Reciprocal Tariffs?

Tariffs are central to Trump’s economic agenda. His administration believes higher tariffs will encourage domestic manufacturing, create jobs, increase tax revenue, and boost the economy. In 2024, over 40% of U.S. imports came from China, Mexico, and Canada. Due to low tariffs, the U.S. has faced a massive trade deficit, with China accounting for 30.2%, Mexico for 19%, and Canada for 14.5% of its trade gap in 2023. To counter this, the U.S. imposed a 25% tariff on goods from Mexico and Canada starting March 4, 2025, along with an additional 10% tariff on Chinese products. Now, starting April 2, India will face similar reciprocal tariff measures.

Impact on India’s Trade and Economy

The reciprocal tariff move will make Indian exports to the U.S. more expensive, potentially reducing demand. India exports pharmaceutical products worth ₹68,520 crore, gems and jewelry worth ₹72,800 crore, petrochemicals worth ₹34,260 crore, textiles, and automobiles to the U.S. Currently, the average U.S. tariff on these goods is 3%. If it increases to 9.5% or more, Indian products will struggle to compete in the American market. Analysts estimate that India could face an annual loss of up to $7 billion (₹61,000 crore), and a 10% uniform tariff hike could reduce exports by 11-12%. Furthermore, India’s trade surplus with the U.S. could shrink, reducing its overall economic advantage.

Potential Consequences on Imports and the Indian Rupee

If India chooses to lower its tariffs to avoid U.S. trade restrictions, American goods could become cheaper in the Indian market, leading to a surge in imports. This could weaken the Indian rupee as higher imports would increase demand for the U.S. dollar, raising the import bill. On the other hand, if India does not lower tariffs, U.S. companies might set up manufacturing units within India to bypass the high tariff costs, resulting in increased Foreign Direct Investment (FDI). This could boost local employment and production capabilities.

Will U.S. Goods Become Cheaper in India?

A report by Nomura suggests that to counter the impact of reciprocal tariffs, India might reduce tariffs on over 30 goods, making U.S. products more affordable. In its recent budget, the Indian government had already lowered import duties on electronics, textiles, and luxury motorcycles. Now, India is considering further tariff reductions on solar panels, chemicals, and high-end automobiles to maintain strong trade relations with the U.S. Additionally, the government may increase its defense and energy purchases from the U.S. to balance the trade equation.

Which Indian Sectors Will Be Affected the Most?

In 2024, the U.S. exported $42 billion (₹3.6 lakh crore) worth of goods to India. The Indian government imposes tariffs of 7% on wood and machinery, 15-20% on footwear and transport equipment, and up to 68% on food products. In contrast, the U.S. imposes only a 5% tariff on agricultural goods, while India charges 39%. If the U.S. implements reciprocal tariffs on agriculture, India’s food and farm exports will take the hardest hit. Although the trade volume in this sector is relatively low, the tariff disparity is significant, making Indian agricultural products less competitive in the U.S. market.

Key Takeaways

1. The U.S. will impose reciprocal tariffs on Indian goods from April 2, mirroring the duties India imposes on American products.

2. India could face an annual loss of ₹61,000 crore due to the higher tariff burden on its exports.

3. Indian pharmaceuticals, jewelry, petrochemicals, textiles, and automobiles will be the most affected sectors.

4. A tariff increase from 3% to 9.5% in the U.S. could make Indian exports uncompetitive in American markets.

5. Higher imports of U.S. goods may weaken the Indian rupee, increasing the trade deficit.

6. India may lower tariffs on more than 30 U.S. goods to maintain stable trade relations.

7. If tariffs remain unchanged, U.S. companies might boost production in India, leading to higher FDI.

8. The Indian agriculture sector could face the most impact due to the significant difference in current tariff levels.

9. To mitigate trade tensions, India might expand its defense and energy imports from the U.S.

10. The long-term impact will depend on India’s response—whether it chooses to negotiate or retaliate with its own trade measures.