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Reciprocal tariff EXPLAINED: Does it threaten India even more? How did New Delhi respond?
Reciprocal tariff explained: India faces significant risk from potential US reciprocal tariffs due to a tariff differential that exceeds 10 percentage points. Economists predict tariff hikes for India and Thailand if the US aims to reduce its trade deficit, affecting the defence and energy sectors.
President Donald Trump on Thursday ordered his administration to consider imposing reciprocal tariffs on numerous trading partners noting that ‘the United States will no longer tolerate being ripped off’. A White House statement quoting President Trump said that despite the US having an open economy, its trading partners block US exports. “And reciprocal trade will finally correct that imbalance.”
“I’ve decided, for purposes of fairness, that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America,” Trump said in the Oval Office. “In almost all cases, they’re charging us vastly more than we charge them, but those days are over.”
As per the new orders, fresh import taxes would be customised for each country to counter their tariffs on U.S. goods and other trade barriers. According to a White House memo, these include unfair subsidies, strict regulations, value-added taxes, exchange rates, weak intellectual property rules, and other policies that restrict U.S. trade.
Trump further stated that he would enact import taxes on cars, semiconductors, and pharmaceuticals “over and above” the reciprocal tariffs later.
Will reciprocal tariffs impact India?
The move is significant for India as Trump announced reciprocal tariffs just hours before Prime Minister Narendra Modi's visit.
While signing the order on Thursday, he specifically mentioned India saying, “India has more tariffs than nearly any other country” making his intentions clear on reciprocal tariff.
Trump also noted that discussions during his first term failed to yield concessions on tariff reductions in regards to India. As a result, the US has decided to adopt a direct reciprocal approach.
"And so we are being reciprocal with India. Whatever India charges, we charge them. So, frankly, it no longer matters to us that much, what they charge. I had discussions with India in the first term about the fact that their tariffs were very high, and I was unable to get a concession," he said
How India responded to the Trump's announcement?
Speaking on the reciprocal tariff controversy, Foreign Secretary Vikram Misri said, "We've been hearing about tariffs for quite some time and in today's discussion between the two sides, this issue came up quite normally in the talks between the two leaders."
"They both had their perspectives, but what's more remarkable is or what's worth looking at is the fact that we have a way forward on this issue in terms of the undertaking to discuss or start discussions on a bilateral trading agreement, and this may actually be a very good opportunity to Take forward something and conclude something which was actually foreseen in the first Trump administration" Misri said.
What experts say?
Economists at global banks from Morgan Stanley to Nomura Holdings Inc. have identified India and Thailand as among the nations most exposed to risks from President Donald Trump’s vow to impose reciprocal tariffs on trading partners, as per Bloomberg.
“Emerging Asian economies have higher relative tariff rates on US exports and are thus at risk of higher reciprocal tariffs,” Nomura analysts led by Sonal Varma said in a note to clients. “We expect Asian economies to step up their negotiations with Trump.”
Bloomberg Economics’ Maeva Cousin and Deutsche Bank’s George Saravelos are among those who found that India’s wide tariff differential with the US left it at particular risk of retaliation.
According to Cousin's analysis, the average rate that India charges US imports is more than 10 percentage points higher than US levies on Indian goods.
In a similar note, Morgan Stanley analysts led by Chetan Ahya predicted that “India and Thailand could see tariff hikes of 4 to 6 percentage points if the U.S. moves to narrow the trade gap”. However, “India may have room to increase purchases of U.S. defence equipment, energy, and aircraft.”
(With inputs from agencies)
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First Published:14 Feb 2025, 10:09 AM IST
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