US Tariffs on Indian Goods:
- Baseline Tariff: On April 5, 2025, the US imposed a 10% baseline tariff on imports from almost all countries, including India. This is a universal tariff applied across the board.
- Reciprocal Tariff: Initially, the US announced an additional 26% reciprocal tariff specifically on goods imported from India, which was set to take effect on April 9, 2025. This additional tariff was part of a broader strategy targeting countries with which the US has significant trade deficits.
- Temporary Suspension: However, following considerable volatility in global markets, the US President, Donald Trump, suspended the additional 26% reciprocal tariff on India for 90 days, until July 9, 2025. This decision came into effect on April 10, 2025. The 10% baseline tariff, however, remains in place.
Rationale for US Tariffs:
The US administration under President Trump has stated that these tariffs are necessary to:
- Address trade imbalances.
- Protect domestic industries.
- Counter what they perceive as unfair trade practices.
Impact on India:
- Exporters’ Concerns: Indian exporters, particularly in sectors like apparel, gems and jewelry, and marine products, were concerned about the impact of the additional 26% tariff, as it could make their products less competitive in the US market and lead to order cancellations or price renegotiations.
- Potential Economic Impact: Some reports suggested that the now-suspended tariffs could have negatively impacted India’s economic growth by 20-50 basis points.
- Opportunity for Trade Deal: The 90-day suspension is seen by Indian exporters as a significant relief and a window of opportunity to advance discussions on a proposed bilateral trade agreement (BTA) with the United States. India is reportedly keen to finalize a trade deal to mitigate the impact of the tariffs and aims to more than double bilateral trade to $500 billion by 2030.
India’s Response and Stance:
- Engagement with the US: India’s Commerce and Trade Ministry has stated that it will remain in touch with the US and is studying the opportunities that may arise from the evolving trade policy.
- Trade Deal Negotiations: India has been actively pursuing a bilateral trade agreement with the US, and talks are ongoing, covering a wide range of issues of mutual interest, including deepening supply chain integration.
- Cautious Approach to FTA: Some experts have advised India to avoid signing a comprehensive Free Trade Agreement (FTA) with the US, suggesting a more limited “Zero-to-Zero” tariff deal on industrial goods instead, to avoid potentially harmful concessions.
