As global trade tensions rise, the question of whether India will be impacted by the United States proposed reciprocal tariffs has gained prominence. In recent discussions, Indian Prime Minister Narendra Modi and U.S. President Donald Trump addressed trade imbalances, defense deals, and tariff concerns. Trump, acknowledging Modi’s negotiation skills, remarked that the Indian leader was a “much better negotiator” than himself. Modi, in turn, played on Trump’s “Make America Great Again” slogan by asserting his commitment to “Make India Great Again.”
Despite Trump’s threats to impose tariffs, both leaders expressed their willingness to resolve trade issues over time, signalling potential concessions from both sides. However, with the U.S. maintaining flexibility to impose punitive taxes on imports under the pretext of addressing non-tariff barriers, the future of trade relations remains uncertain.
India’s economy is primarily driven by domestic demand and has a substantial service export sector, which is unlikely to be directly targeted by U.S. tariff measures. However, according to a study by the Global Trade Research Initiative (GTRI), the U.S. may leverage concerns over non-tariff barriers, local taxation policies, and currency regulations to exert pressure.
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GTRI’s founder, Ajay Srivastava, highlighted that about 75% of U.S. exports to India already face tariffs below 5%, making reciprocal tariff increases less effective. Instead, the U.S. could cite issues such as India’s Integrated Goods and Services Tax (IGST) on imports, additional compensation cess on certain products, and regulatory policies to justify trade restrictions.
In my view, the impact of reciprocal tariffs depends on their application—whether at the product level, sector level, or country level. If imposed at the product level, the disruption may be minimal, as India and the U.S. do not always trade the same products. However, if applied at the sector level, entire industries could face significant setbacks.
According to GTRI data, sector-wise tariff gaps between India and the U.S. vary: (a) Chemicals & Pharmaceuticals: 8.6%, (b) Plastics: 5.6%, (c) Textiles & Clothing: 1.4%, (d) Diamonds, Gold, and Jewellery: 13.3%, (e) Iron, Steel & Base Metals: 2.5%, (f) Machinery & Computers: 5.3%, (g) Electronics: 7.2%, and (h) Automobiles & Auto Components: 23.1%.
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The gems and jewellery sector—India’s second-largest export category to the U.S. ($12 billion)—is expected to be hit hardest. The automobile sector, while facing the highest percentage increase in tariffs, has relatively lower total exports to the U.S. ($2.8 billion), minimizing its overall impact.
India’s exports to the U.S. span across 30 sectors, with six in agriculture and 24 in industry. Some of the most vulnerable agricultural and food processing sectors include: (i) Fish, Meat & Processed Seafood ($2.58 billion): 27.83% tariff differential, (ii) Processed Food, Sugar & Cocoa ($1.03 billion): 24.99% tariff increase, (iii) Cereals, Vegetables, Fruits & Spices ($1.91 billion): 5.72% tariff differential, (iv) Dairy Products ($181.49 million): 38.23% tariff increase, (v) Edible Oils ($199.75 million): 10.67% tariff increase, (vi) Alcohol, Wines & Spirits ($19.2 million): 122.10% tariff increase, and (vii) Tobacco & Cigarettes ($94.62 million): No additional impact, as U.S. tariffs already stand at 201.15%
Hence, some sectors will remain unaffected or may even benefit. For example, ores, minerals, and petroleum ($3.33 billion) and garments ($4.93 billion) have negative tariff differentials of -4.36% and -4.62%, respectively, meaning that no additional tariffs are likely.
If the U.S. were to impose a single reciprocal tariff on all Indian exports, it would amount to an additional 4.9% across the board. As of now, U.S. goods face a weighted average tariff of 7.7% in India, while Indian exports to the U.S. face an average of 2.8%, creating a 4.9% trade imbalance in tariffs. If the reciprocal tariff is applied uniformly, India’s exports may see a marginal decline, but the broader implications would depend on the targeted sectors.
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While the reciprocal tariff policy remains uncertain, its impact on India will largely depend on the specific sectors targeted. However, India’s strong domestic-driven economy and service sector resilience may cushion the overall effects, but key industries like gems and jewellery, automobiles, processed foods, and dairy could face indeed serious setbacks.
Ultimately, diplomatic negotiations and trade agreements between the two nations will determine the final impact. As India and the U.S. continue trade talks, both may offer mutual concessions to avoid severe economic disruptions, especially given the strong working relationship between their leaders.
However, businesses in affected sectors should prepare for potential adjustments in trade policies and pricing structures to stay competitive in the evolving global trade landscape. (The author is former high-profile Director-General of Police (DGP) of undivided Andhra Pradesh)
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