On April 2, 2025, US President Donald Trump signed an executive order titled ‘Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits’. Trump’s reciprocal tariff policy is rooted in concerns that widening US trade deficits ($1.2 trillion in 2024) stemming from non-reciprocal trade relationships, where higher foreign tariffs along with non-tariff barriers and currency manipulation, are a threat to national security and the economy. To address this, two sets of tariffs were announced. A baseline tariff (10%) on imports of all foreign origin goods (April 5-8, 2025) and from April 9, an additional reciprocal tariff on 57 countries (in addition to Canada and Mexico) with significant trade surpluses against the US. The additional reciprocal tariff of 26% imposed on India should not be seen in isolation, it must be assessed in relative terms to our export competitors.
This policy brief analyses the likely implications of the USA’s additional reciprocal tariffs on India’s exports to US, with specific focus on agriculture. Through a comparative analysis based on US import demand and competing countries’ tariff rates, we identify sectors/commodities where India can still expand its presence despite the 26% reciprocal tariffs. The policy brief also discusses how to navigate the tariffs, as India proceeds to sector-wise bilateral discussions with US.
Our research implies that India has a strategic opportunity to occupy the space that China will likely vacate in key labour-intensive and other export sectors. India’s Textile & Apparel segment has a potential upside over the next few years if India can plug the gap left by our competitors. Sectors like machinery, smartphone, telecom, and networking; toys and games, leather, and footwear sector are prospective areas of growth.
India’s approach to Trump’s reciprocal tariff move must be constructive and not combative. The bilateral talks beginning next week should be forward looking towards Mission 500, i.e, more than doubling bilateral trade to $500 billion by 2030. Achieving this requires a balanced approach, opening trade flows both ways, accommodating mutual interests and addressing the $45.7 billion trade surplus that India enjoys over the US. With the right mix of diplomacy and economic strategy, India can leverage the space vacated by global players like China, who are more adversely affected by the reciprocal tariffs. Concurrently, in light of the recent developments, India must also diversify its export destinations (e.g., EU, UK) and fast-track FTA negotiations amid rising trade tensions.
