US Hikes Tariff on Indian Imports to 26%: All You Need to Know

The US has announced sweeping tariff hikes under Trump’s new trade policy, directly impacting India’s exports to its largest trading partner. With a baseline 10 percent tariff on all imports and significantly higher rates for countries with large trade surpluses, India now faces duties as high as 49 percent on certain products. Washington’s latest move could disrupt key Indian industries, including gems and jewelry, textiles, and agriculture.

As the US tightens its trade policies, India must navigate the shifting landscape to protect its economic interests.

On April 3, 2025 (IST, 1:30 AM), the US announced reciprocal tariffs on over 180 countries, including a 10 percent universal tariff on all imports, effective April 5, 2025. However, in a major decision, the US administration has exempted pharmaceuticals from these tariffs.

Industry leaders view this exemption as a major win for India’s pharmaceutical sector, reinforcing its position as a global powerhouse. According to media reports, the Secretary General of the Indian Pharmaceutical Alliance (IPA) believes that this decision highlights the essential role of affordable, life-saving generic medicines in public health, economic stability, and national security.

US rolls out new trade tariffs

US President Donald J. Trump has introduced a comprehensive plan for reciprocal tariffs, asserting that foreign countries have long exploited the United States through unfair trade practices. During his national address, Trump emphasized April 2, 2025, as “Liberation Day” for the US and revealed a detailed tariff structure targeting various countries.

Source: Fact Sheet, The White House

Trump has said that the tariff implementation will be done in two phases:

1. Baseline 10 percent tariff on all countries

• Effective date: April 5, 2025, at 12:01 a.m. EDT
• Details: A 10 percent tariff will be imposed on all imports from every country.

2. Higher tariffs on countries with the largest trade deficits

• Effective date: April 9, 2025, at 12:01 a.m. EDT
• Details: Countries with which the US has the largest trade deficits will face higher, individualized reciprocal tariffs. The exact rates will vary depending on the level of the deficit.

Source: ITC Trade Map

The White house has said that these tariffs will remain in place until Trump determines that the trade deficit and nonreciprocal trade practices have been resolved or mitigated.

The tariffs will be implemented under Trump’s authority through the US’s International Emergency Economic Powers Act of 1977 (IEEPA), which allows the President to take economic actions in response to a national emergency.

US trade policy shift and national trade estimate report 2025

A day prior to the official release of new tariff rates by Trump, the Office of the US Trade Representative (USTR) released its annual National Trade Estimate Report, highlighting India’s high tariff and non-tariff barriers on imports.

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The report, released on March 31, 2025, stated that in 2023, India’s average Most Favored Nation (MFN) applied tariff rate was 17 percent, the highest among major economies. Some of the key tariff rates in India as of 2023 are list below:

• Overall average tariff: 17 percent
• Non-agricultural goods: 13.5 percent
• Agricultural goods: 39 percent

The report also highlighted high tariffs imposed by India on specific goods such as vegetable oils, apples, corn, motorcycles, automobiles, flowers, coffee, raisins, walnuts, alcoholic beverages, etc.

Source: World Integrated Trade Solutions, World Bank

The dossier notes India has raised tariffs on telecom equipment, medical devices, solar products, automotive parts, and processed foods, creating uncertainty for US exporters. It also pointed to restrictions on foreign direct investment (FDI), trade barriers in the insurance sector, and internet shutdowns hindering US digital services.

Trump’s rationale behind the tariffs

Trump criticized the disparities in trade policies, highlighting that while the US imposes a minimal 2.4 percent tariff on imported motorcycles, other nations charge significantly higher rates.

Source: World Integrated Trade Solutions, World Bank

Indian industries that rely heavily on US exports for commodities—including seafood, dairy, wine, diamonds, electronics, and chemicals—are expected to face the most significant disruptions. With the latest tariff norms coming into effect April 5, 2025, Indian sectors like pharmaceuticals and chemicals face an 8.6 percent tariff gap, plastics 5.6 percent, textiles 1.4 percent, jewelry 13.3 percent, and automobiles 23.1 percent. This discrepancy places Indian exporters at a disadvantage, increasing costs and reducing competitiveness in the US market.

Trump’s tariff impact on India-US trade relations

The full impact of Trump’s tariff policies on India’s economy remains to be seen. The US is India’s largest trading partner, with the latter consistently maintained a surplus in merchandise trade with the US for several years.

*For the FY 2024-25, India’s trade data is available on the Department of Commerce, Government of India’s website for the period from April 1, 2024, to December 31, 2024. The full financial year data is expected to be released in the coming months.

India’s merchandise exports to the US in FY2023-24 totaled approximately US$77 billion, with key contributors from the following sectoral commodities:

• Pearls, gems, and jewelry: US$9.9 billion
• Pharmaceuticals: US$8 billion
• Petrochemicals: US$4 billion

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

The implementation of these tariffs could severely impact industries including agriculture, electronics, pharmaceuticals, medical equipment, and machinery. The Global Trade Research Initiative (GTRI) reported that India’s fish, meat, and seafood exports (US$2.58 billion in 2024) would face a tariff hike of 27.83 percent, while processed food, sugar, and cocoa exports (US$1.03 billion) could suffer from an additional 24.99 percent tariff burden.

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

The tariff structure imposed by the US on Indian goods varies across sectors, with some industries facing significantly high import duties. Indian dairy exports, for example, face exceptionally high tariffs, with buttermilk and fermented milk products taxed at 56.46 percent and milk powder at 30.84 percent. Other categories affected include onions (25.54 percent), garments (up to 28.2 percent), and footwear (ranging from 20.8 percent to 29.51 percent). Meanwhile, industrial goods like iron, steel, and machinery components face tariffs between 5 percent and 12.5 percent. These barriers pose significant challenges for Indian exporters, making it difficult to compete in the US market.

Potential benefits of US tariffs for India

Despite these challenges, some economists believe India remains one of Asia’s more resilient economies amid escalating trade tensions. As per a research analysis released in March 2025 from Nomura, a global finance service group, suggests that India’s domestic demand-driven economy could mitigate broader risks.

Meanwhile, Morgan Stanley analysts believe that indirect effects, such as reduced corporate confidence and trade uncertainty, may pose a greater challenge than direct trade restrictions.

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Additionally, some reports suggest that India might benefit from trade diversion as American buyers seek alternative suppliers. India’s growing role as a manufacturing alternative to China, along with its “Make in India” initiative, could provide a competitive edge in the electronics, pharmaceutical, and textile industries.

US tariff implications on Indian industries

The imposition of US tariffs on Indian exports carries significant consequences for multiple industries, ranging from technology and automobiles to textiles and jewelry.

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The gems and jewelry industry faces a particularly uncertain future, as the US is India’s largest market for jewelry exports, accounting for 30 percent of total shipments. While cut and polished diamonds currently enjoy duty-free access, any modification to this arrangement could disrupt trade flows and affect Indian jewelry manufacturers.

According to Statista, in FY 2023-25, the US was the largest export destination for the Indian automobile components industry, accounting for 27 percent of the total export value of US$21 billion.

India’s automobile sector is set to experience substantial pressure with the introduction of a 25 percent tariff on automobile imports, effective from April 5, 2025.  Further tariff extensions to components could challenge Indian auto manufacturers, potentially reshaping supply chains and diminishing their cost advantage in the US market.

The electronics and electrical machinery exports from India, particularly smartphones, are vulnerable to the proposed tariff increases, ranging from 1.2 percent to 10.8 percent. Over half of India’s electronics exports to the US comprise Apple iPhones assembled in India, meaning higher tariffs could drive up costs for US consumers and weaken demand, potentially affecting India’s manufacturing ambitions.

India’s textile and apparel industry, which derives 28 percent of its exports from the US, valued at US$9.6 billion in FY2024-25, is also at risk. The latest tariff annuncement could diminish India’s competitive pricing advantage, forcing manufacturers to explore alternative markets or absorb higher costs.

Tariff relief for pharma and semiconductor sectors

Following the tariff announcement, Trump reportedly told reporters that tariffs on semiconductor imports would take effect “very soon,” while pharmaceuticals were being reviewed as a separate category for potential levies.

A White House fact sheet clarified that drugs and certain other products are not affected by the new levies. Notably, the April 2 tariff announcements did not include any sector-specific measures.

While both sectors remain under review, the Trump administration has already imposed a 25 percent tariff on automobile imports and auto components. However, India’s pharmaceutical sector remains exempt from these tariffs, reinforcing its critical role in global healthcare supply chains.

At present, India levies a 10 percent tariff on pharmaceutical imports from the US, whereas the US does not impose any tariffs on Indian pharmaceutical products. This exemption highlights the strategic importance of India’s generic medicine exports to the US, a market heavily reliant on cost-effective and life-saving drugs.

India’s response to US tariffs

The central government has maintained that it is assessing strategies to counter Trump’s trade policies:

• Per media reports published on April 1, 2025, the Ministry of Commerce and Industry has developed models to evaluate tariff differences and is engaging with local manufacturers.
• India is expected to launch an online platform in the coming months to record export restrictions encountered by Indian businesses.
• India is considering negotiating a broader trade and investment agreement with the US, potentially offering tariff reductions on select products while strengthening domestic industries through production-linked incentives.
• Efforts are underway to increase imports from the US in key sectors such as defense, aerospace, energy, and technology.
• India is introducing enhanced incentives for industries like semiconductors, renewable energy, and aircraft components to attract US investment.

Since the initial tariff announcement in February 2025, India has been in negotiations with the US to seek favorable terms.

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