India-US Trade Relations Under Trump’s Tariffs

US President Donald J. Trump’s recent announcement on the implementation of “reciprocal tariffs,” set to take effect on April 2, 2025, marks a significant shift in the trade dynamics of India-US. This policy, which aims to align US import duties with those imposed by other nations, is expected to have profound economic implications, particularly for India, a key US trade partner.

On March 4, 2025, Trump, in his address to Congress, reiterated his stance that global trading partners have long imposed higher tariffs on US goods than the US imposed on imports from other countries, creating an imbalance in international trade. He announced the implementation of reciprocal tariffs on trade partners India, China, and the European Union (EU) starting April 2, 2025, regardless of their economic status. 

The new policy seeks to correct this imbalance by imposing equivalent tariffs on imports from these nations. The decision is expected to impact India’s key sectors such as automobiles, semiconductors, and pharmaceuticals, which could see tariffs as high as 25 percent.

Trump also criticized India’s high import duties, particularly in the automobile sector, where tariffs exceed 100 percent.

Historical trade relations between India and the US and previous tariff measures

The US has historically employed various trade mechanisms to impose tariffs on Indian goods. These include:

• Section 301 of the Trade Act of 1974: Enables the US to investigate and impose tariffs in response to unfair trade practices.
• Section 232 of the Trade Expansion Act of 1962: Allows the imposition of tariffs on national security grounds.
• Generalized System of Preferences (GSP) Revocation: In 2019, the US revoked India’s GSP status, eliminating duty-free benefits for many Indian exports.

Product-specific tariff announcements by Trump

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Since taking office, Trump has launched a series of actions targeting various types of products the US trades with India. These include:

• Agricultural products: Tariffs on imported agricultural goods will be imposed from April 2, 2025.
• Lumber: A Section 232 investigation into timber and lumber imports is underway, with findings expected by November 26, 2025.
• Steel and aluminum: Existing tariffs will be expanded, with aluminum tariffs rising from 10 percent to 25 percent, effective March 12, 2025.
• Automobiles: A 25 percent tariff on auto imports will be imposed starting April 2, 2025.
• Copper: A Section 232 investigation into copper imports is in progress, with results due by November 22, 2025.
• Semiconductors and pharmaceuticals: Tariffs of 25 percent or higher will be introduced, though legal details remain unclear.

Trade data and economic impact

Trade activities between the two countries reflect notable fluctuations between India and the US over recent years.

Source: Department of Commerce, Ministry of Commerce and Industry, GoI

Source: Department of Commerce, Ministry of Commerce and Industry, GoI

Source: Department of Commerce, Ministry of Commerce and Industry, GoI

Note: *The India-US trade data for FY2024-25 will be released in April after the completion of the ongoing financial year, ending on March 31, 2025. 

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India’s key exports to the US include electrical machinery, precious stones, pharmaceuticals, and apparel, while the US’s main exports to India are mineral fuels, machinery, and optical instruments. With the introduction of reciprocal tariffs, Indian exports may become costlier, affecting trade volumes and market competitiveness.

Challenges for India’s auto and pharmaceutical industries

India’s automobile and pharmaceutical sectors, which have been key contributors to the economy, could face significant challenges due to US tariff policies. As international pressure grows for India to open its protected markets, these industries may experience rising costs and diminishing competitiveness in the US.

Potential setback for India-US bilateral trade deal

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India and the US have been working towards establishing a bilateral trade agreement (BTA), with India seeking relief from tariffs, including the 25 percent duty on steel and aluminum. As of March 3, 2025, the Union Commerce Minister, Piyush Goyal, is in the US to hold discussions with the United States Trade Representative (USTR), who is responsible for overseeing tariff policies.

Tariff disparity between India and the US

A report from the Indian Council for Research on International Economic Relations (ICRIER) highlights the stark contrast in tariff structures between the two nations. India imposes an average tariff of 17 percent, whereas the US maintains a much lower average of 3.3 percent. The gap is even wider in agriculture, where India’s simple average tariff is 39 percent, compared to 5 percent in the US. Trade-weighted rates further emphasize the disparity—India’s is 65 percent, while the US stands at just 4 percent.

Potential consequences for India and the US

1. Higher costs for Indian exporters: The increased tariff burden may force Indian businesses to seek alternative markets or restructure pricing strategies to maintain competitiveness.
2. Decline in trade volume: India’s key sectors, such as pharmaceuticals and IT, which heavily rely on US exports, may experience reduced demand.
3. Impact on US consumers: Cost of Indian goods, including pharmaceuticals and textiles, may rise, impacting affordability and supply chains.
4. Potential countermeasures: The Indian government may retaliate by imposing duties on US imports or negotiating for reduced tariffs on key exports.
5. Trade negotiations and diplomacy: The US position on enforcing these tariffs remains firm unless India agrees to significant policy changes.

Navigating the future of US-India trade relations in FY2025-26

India has previously responded to US tariffs with countermeasures, raising duties on American imports such as apples, almonds, and motorcycles. The current tariff escalation could lead to another round of trade negotiations.

According to a report published by the Global Trade Research Initiative (GTRI) on February 28, 2025, Indian businesses should explore alternative export destinations, including Europe, Southeast Asia, and Africa, where tariff barriers are less restrictive. Another strategic approach could involve establishing joint ventures with American firms or setting up assembly plants in the US to bypass some of the tariff burdens.

The coming months will be critical in determining the future of US-India trade ties. Strategic policymaking, active diplomatic engagement, and diversification of export markets will be essential for India to mitigate the impact of these tariffs. Businesses and policymakers must remain vigilant in adapting to the evolving trade landscape to sustain bilateral trade growth and economic stability.

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