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In charts: What reciprocal tariff threat could mean for Indian goods
Summary
India’s tariff rates on US goods have dropped considerably in the 21st century. However, the US’ tariffs on Indian goods are lower. Which goods can reciprocal tariffs hurt the most? Here are the numbers.
US President Donald Trump has been relentless in his pursuit of a tariff overhaul ever since assuming office in January. After making Mexico, China, and Canada his first victims (even though he paused some of the moves for a limited time), and threatening 25% tariffs on all steel and aluminium imports, he then announced his intention to introduce reciprocal tariffs on US’s imports from other countries, including India. Highlighting the “high" tariffs from nations like Brazil, India, and China, he stated that his reciprocal tariff plan would be implemented starting 2 April.
The US has consistently been India’s biggest trade partner, with a 17.7% share in its total exports in FY24. However, India is one of many sources of imports for the US: it made up just a 2.7% share of total US imports in FY24. India’s dependence on US goods is more: the US’s share in India’s total imports was higher at 6.2% in FY24. India has maintained a consistent merchandise trade surplus with the US, which reached $35.3 billion in FY24.
How much tariff do India and US charge each other?
The weighted average tariff rates—a single indicator derived from tariff rates on different goods—imposed by both India and the US on goods imported from each other have significantly decreased since the 2000s. India’s tariff rate, which averaged over 20% in 2000, has dropped to below 10%. The US’s tariff on Indian goods peaked at 3.9% in 2001 but has since fallen to 2.9% in 2022.
Consequently, the tariff gap between the two countries reduced from a peak of 22.9 percentage points in 2000 to 2.5 percentage points in 2022, data from the World Integrated Trade Solutions (WITS) showed.
India, along with other emerging Asian economies like Thailand and China, has much higher tariff rates on the US, making them more vulnerable to reciprocal tariffs. In contrast, developed Asian economies with US free trade agreements (FTAs), such as South Korea and Singapore, are less at risk, said a report by Nomura, dated 10 February.
If the US imposes reciprocal tariffs, India’s exports to the country could drop by $2-3.5 billion in FY26, potentially hurting GDP growth by 5-10 basis points from the current estimate of 6.6%, notes Devendra Kumar Pant, chief economist and head of public finance at India Ratings, in a report dated 28 February. (A basis point is one-hundredth of a percentage point.)
Which sectors are likely to be the worst hit?
Even though Trump's threat has alarmed policymakers and economists alike, the actual impact of the tariffs will depend on whether they are applied at the product, sector or country level.
A report by Global Trade Research Initiative (GTRI) notes that if tariffs are imposed at the product level, the impact may be limited since India and the US do not necessarily trade identical goods. However, if applied at the sector level, entire industries could face major disruptions.
At the broad sector level, the potential tariff gaps between India and the US vary, with the report highlighting agriculture, meat, and processed foods as the most vulnerable sectors to reciprocal tariffs. The fish, meat, and processed seafood sector stands to be the hardest hit, with $2.58 billion in exports facing a tariff differential of 27.8%, the GTRI report noted.
Apart from this, food products, footwear, and textiles also face significant tariff gaps favouring India. However, since their trade with the US is small in absolute terms, these sectors are likely to experience relatively less exposure to reciprocal tariffs.
The full impact of the tariffs threat will become clearer once the Trump administration finalizes new rates—if it does—for all countries next month. He has already issued exemptions on Mexico and Canada after making them the earliest victims of his tariffs. India is currently weighing its options, and will watch Trump's actions against other countries for cues. To be sure, talks on a trade deal between the two countries are also ongoing in Washington, which could bring more clarity on tariffs.
