Understanding US Tariffs on India

The United States has periodically imposed tariffs on Indian goods, citing trade imbalances, market access issues, and domestic industry protection. In 2019, India lost its preferential trade status under the Generalized System of Preferences (GSP), impacting tariff-free exports worth billions of dollars. Recent discussions on tariffs cover key sectors such as steel, aluminium, textiles, pharmaceuticals, and agricultural products.

Key Sectors Affected

1. Steel and Aluminium: Increased tariffs on these commodities have made Indian exports more expensive, reducing competitiveness in the US market.
2. Pharmaceuticals: Although India remains a key exporter of generic drugs to the US, any tariff hikes could affect pricing and affordability.
3. Textiles & Apparel: Higher duties impact India’s position in the competitive US textile market.
4. Agriculture: Indian agricultural exports, including rice, spices, and dairy, face trade barriers due to increased tariffs and regulatory challenges

Economic Impact on India

🔹 Reduced Export Revenue – Higher tariffs make Indian goods costlier, leading to declining export volumes.
🔹 Supply Chain Disruptions – Increased costs in raw materials and production affect Indian businesses relying on US trade.
🔹 Foreign Investment Concerns – Trade uncertainties may deter US-based investments in Indian manufacturing and services.
🔹 Trade Deficit Challenges – A restricted access to the US market could widen India’s trade deficit.

Opportunities & Strategic Response

Despite challenges, India has actively engaged in trade negotiations to mitigate the impact of tariffs. Some potential strategies include:

✅ Diversifying Export Markets – Strengthening trade ties with the EU, ASEAN, and Middle Eastern countries to reduce dependence on the US.
✅ Bilateral Agreements – Negotiating favorable trade terms under a new India-US trade deal to ease tariff restrictions.
✅ Boosting Domestic Manufacturing – Government initiatives like ‘Make in India’ and PLI (Production Linked Incentive) schemes aim to strengthen domestic industries.
✅ Strengthening WTO Disputes & Trade Diplomacy – India has raised concerns over unfair trade practices at the World Trade Organization (WTO) to seek resolution.

Existing Tariff Rates Prior to April 2025

Before the recent tariff hike, the average U.S. tariff on Indian goods was relatively low. Specifically, the tariff rate increased from 2.72% in 2018 to 3.91% in 2021, with a slight decrease to 3.83% in 2022. In contrast, India’s tariffs on U.S. imports rose from 11.59% in 2018 to 15.30% in 2022, highlighting a notable disparity in tariff structures

Implications of the New 26% Tariff

The introduction of a 26% tariff by the U.S. is expected to have multifaceted effects on India’s economy:

• Export Competitiveness: Indian products, now subjected to higher tariffs, may become less competitive in the U.S. market, potentially leading to a decline in export volumes.
• Sectoral Impact: Industries such as gems and jewellery, which constitute a significant portion of exports to the U.S., are likely to face substantial challenges. The U.S. accounts for nearly $10 billion or 30.4% of India’s annual gems and jewellery exports.
• Economic Growth: A reduction in exports could adversely affect India’s GDP growth, especially if key industries experience downturns due to decreased demand from the U.S.

Strategic Considerations for India

In response to these developments, India might consider several strategic measures:

• Trade Diversification: Exploring and strengthening trade relations with other countries to reduce dependency on the U.S. market.
• Negotiations: Engaging in diplomatic dialogues with the U.S. to address trade imbalances and seek potential exemptions or reductions in tariff rates.
• Domestic Policy Adjustments: Re-evaluating India’s own tariff structures and trade policies to foster a more balanced and mutually beneficial trade relationship.

The imposition of the 26% tariff by the U.S. represents a significant challenge for India’s export sector. Proactive measures, including policy adjustments and market diversification, will be crucial for India to navigate this evolving trade landscape and mitigate potential economic impacts.

Looking Ahead

While tariffs pose short-term challenges, they also push India toward self-reliance and diversification in trade. Strengthening domestic industries, forging new global partnerships, and engaging in strategic negotiations with the US can help India navigate the complexities of tariff impositions. India’s long-term economic vision, supported by strong diplomatic ties, will be crucial in ensuring sustained trade growth while balancing the impact of US tariffs.