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Why Trump’s Reciprocal Tariffs On India’s Exports To US Will Have A ‘Limited’ Impact

The United States remains India’s primary export market, comprising 17.7 of total exports in FY24.
Photo : AP

India is expected to have “limited impact” by the proposed US reciprocal tariff as the country’s economy is mainly driven by domestic demand, and has substantial services exports, according to a recent report. US President Donald Trump has labelled India as a “tariff abuser” and “tariff king” as he vowed to impose reciprocal tariffs on US’s trading partners.
So, will the US’s reciprocal tariffs slowdown India’s GDP growth?
A recent State Bank of India (SBI) report estimated decline of only 3 to 3.5 per cent, even with tariffs ranging from 15 to 20 per cent. “Tariff reciprocity may turn out to be more of white noise…Our estimates show overall incremental tariff levels even at 15%-20% imposed by USA would still limit the impact on exports to US only in the range of 3-3.5%,” said SBI in its report.

The report also said that this impact would be negated through higher export goals, as India has diversified its exports kitty, pitched value addition, exploring alternate areas and works on new routes that transcend from Europe to USA via the Middle-East, redrawing new supply chain algorithms that foster strategic inclusivity.

“While there is a lot of white noise and froth in the broader markets regarding the extent of impact of tariff on India under proposed ‘Fair & Reciprocal Plan’ that seeks to correct (from US perspectives) longstanding imbalances in international trade and ensure fairness across the board, we understand the overall bilateral negotiations provide a collateral benefit to India,” read the report by SBI’s Economic Research Department.
S&P Global Ratings, Economist Asia-Pacific, Vishrut Rana said the reciprocal tariff will hurt countries like Vietnam, South Korea, Taiwan more as they have high trade surplus with the US.
The Indian economy has two mitigating factors — greater reliance on domestic economy and larger services trade with the US, which is not likely to be tariffed.
“India’s dependence on exports for growth is not that great. So, therefore, I think the impact (of US tariffs) will be more or less limited,” S&P Global Ratings, Director, Sovereigns (Asia-Pacific) YeeFarn Phua said.

Phua said the US may not impose higher tariffs on pharmaceuticals, which are basically generic drugs, from India as it would drive up healthcare costs in its own country.
However, textiles and to some extent chemicals are most at risk of higher tariffs.
“If we were to reimagine that scenario for the first Trump administration to unfold again, I think overall, the impact on India should be quite minimal,” Phua added.
India-US Trade Picture
The United States remains India’s primary export market, comprising 17.7% of total exports in FY24. India’s trade surplus with the US has grown substantially from $7 billion in 2000 to $45.7 billion in 2024.
According to Times of India, US tariffs on Indian products increased from 2.72 per cent in 2018 to 3.91 per cent in 2021, before settling at 3.83 per cent in 2022. Indian tariffs on US imports rose from 11.59 per cent in 2018 to 15.30 per cent in 2022.
Earlier in 2018 under the Presidency of Donald Trump, Washington had imposed an additional 25 per cent import duty on steel products and 10 per cent on certain aluminium products. In retaliation, India in June 2019, imposed additional customs duties on 28 American products.
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