Between 2021 and 2024, the US was India’s largest trading partner. From April to November 2024, trade in goods between the two nations reached $82.52 billion—with India exporting $52.89 billion worth of goods and importing $29.63 billion. This created a trade surplus of $23.26 billion in India’s favour.
The US accounts for 18% of India’s total exports, 6.22% of its imports, and 10.73% of overall trade.
The US has large trade deficits with several countries, especially China. In 2023-24, the US had a $35.31 billion trade deficit with India in goods. To reduce this gap, Trump is pushing for higher import duties on countries with higher tariffs on US goods.
Arvind Panagariya, a Professor of Economics and the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University explains that tariffs will likely be product-specific, with heavy products like automobiles potentially facing higher tariffs.
How will the tariffs evolve after the order takes effect on April 1?
President Trump’s approach is to impose tariffs on Indian exports at the same level that US goods face in India. However, this won’t apply to the same products, as India and the US export different goods to each other. Panagariya explained that President Trump aims to ensure that each country’s exports face similar tariff levels. Since India imposes higher tariffs on US goods compared to what Indian exports face in the US, the plan is to increase tariffs on Indian products to create a more balanced trade structure.
Panagariya believes tariffs will be adjusted on a product-by-product basis. Some US exports to India already face tariffs much higher than 9.5%, so similarly, certain Indian exports to the US could also see significantly higher tariffs rather than a uniform rate.
Read Here | Trump moves to impose reciprocal tariffs as soon as April
Impact on the profits of Indian exporting companies
Panagariya noted that Indian exports to the US are likely to be impacted, but the extent and specific products affected remain uncertain. He expects bilateral negotiations between India and the US before any final tariff decisions are implemented, which could influence the overall impact.
Impact on Indian textile exporters
Panagariya believes that a balanced trade negotiation could benefit both countries. If India lowers tariffs on US goods, the US might reduce tariffs on Indian exports, including textiles.
Additionally, India could gain preferential treatment under the US Generalized System of Preferences (GSP) for apparel. Also reducing high tariffs on automobiles would benefit Indian consumers by making cars more affordable and improving industry competitiveness.
Read Here | India is fixing its inverted duty structure to boost trade, says Sudhir Kapadia
Impact on pharmaceutical companies
Panagariya acknowledged that the pharmaceutical sector is at risk since it exports a large volume to the US, making it vulnerable to higher tariffs. However, he emphasised the importance of approaching negotiations with an open mind.
If India agrees to lower tariffs on some US products, it could help avoid or reduce higher tariffs on Indian exports. Based on past experience, he believes that after some adjustments, the industry will ultimately emerge stronger.
Read Here | Samir Arora: Reciprocal tariffs won’t hit most Indian industries, market near bottom
What happens if no agreement is reached?
If India agrees to lower tariffs, it could lead to more US goods entering the market. However, Panagariya believes if both countries reach a deal, they might grant each other better market access, benefiting both sides. On the other hand, if no agreement is reached, both countries could impose higher tariffs on each other’s products.
If India lowers tariffs for the U.S., must it do the same for all countries
According to World Trade Organization (WTO) rules, member countries must follow set tariff limits for all products. India’s import duties follow these rules, staying within the approved limits.
However, if a country imposes tariffs higher than the allowed rates, it violates WTO regulations.
Panagariya explained that lowering tariffs only for the US could violate WTO rules due to the Most Favored Nation (MFN) clause, which requires equal treatment for all trading partners.
However, trade policies have become more complex, especially since the WTO’s dispute resolution system is not fully operational. If the US itself applies different tariffs for different countries, it would also be in violation. In such a case, India would need to carefully decide its approach based on negotiations and broader trade interests.
Also Read | India cuts tariff on US bourbon whiskies from 150% to 100%
