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In December 2024, President Trump sparked trade tensions by targeting India’s high tariffs under his "America First Trade Policy". On 2 April 2025, he announced reciprocal tariffs: a flat 10% duty on all imports starting 5 April as well as country-specific rates mirroring foreign levies on US goods, citing unfair trade practices and tariff asymmetry as threats to US economic stability. For India, this meant a 26% duty starting 9 April.
However, in a significant shift from his earlier aggressive stance, President Trump announced a pause on implementing new reciprocal tariffs on India, while maintaining high tariffs on Chinese imports. This signals a strategic reconsideration amidst global supply chain challenges and evolving geopolitical priorities.
For India, heavily reliant on exports, these developments could have a significant impact sectors like pharma, textiles, and auto parts. But is this a trade war—or a chance for a strategic reset?
This article explores the rationale, potential impact on India-US trade, and the path forward for Indian businesses amid rising protectionism.
Reciprocal tariffs follow a parity principle, if any country imposes high tariffs on US goods, the US responds in kind. The Trump administration is using this to push for fairer trade terms. India, often criticised for high tariffs on items like automobiles and medical devices has an average Most-Favoured Nation (MFN) tariff of 17%, while in the US, this is only 3.3%. With the US trade deficit hitting USD 1.2 trillion in 20241, concerns over domestic industry losses have grown. President Trump's order estimates India's effective tariff on US exports at 52%, justifying a 26% reciprocal tariff.
The US has also raised concerns over India's non-tariff barriers, particularly stringent regulatory frameworks requiring complex compliance measures for US exports—from food and cosmetics to medical devices and electronics. While India justifies these as safety and quality control measures, the US sees them as roadblocks to fair competition, prompting retaliatory action.
India’s pharma exports reached USD 27.9 bn in FY24 with the US accounting for over 31% of India's total pharmaceutical exports2. Pharmaceuticals remain exempt for now, providing a relief for India’s generic drug makers, however, uncertainty looms as the US has issued a statement that the government is reviewing tariffs on this sector as well.
Auto parts, steel, and aluminum are not covered in the recent tariff orders as they are already subject to the Section 232 tariffs of 25% announced on 26 March 2025. While exports to US formed 27% of the total exports in FY243, auto parts exports, where the US is a key market, may face headwinds.
India’s exports of semiconductor devices to the US were approximately USD 1.81 billion in 2023. Thus, acknowledging their critical role in global supply chains, semiconductors have been exempted from these tariffs.4
The US accounts for about one-fourth of the total exports from India in the textile and apparel industry. During FY25 (April to December), US exports accounted for a 29% share of overall exports, an increase from a 24% share witnessed in FY205. This industry may see a 10–20% tariff hike, threatening competitiveness, though India may fare better than peers like Bangladesh, Sri Lanka, and Vietnam, which are facing higher US tariffs.
The US was also the largest importer of Indian agricultural products, accounting for USD 4.19 billion and of 11.36% of the total exports (until December 2024)5 including seafood and rice, which are likely to be hit by a 26% tariff, hurting price appeal.
There are also potential challenges to India’s gemstone and jewelry exports, as the US has levied a 17% tariff on Israeli exports, such as diamonds and tech equipment, which is lower than the 26% rate on Indian goods.
Higher US tariffs will raise import costs, likely pushing prices up for US consumers. This may lead to a shift to domestic goods or reduced consumption. However, with high labour costs and limited manufacturing in sectors like textiles, electronics, and agri-products, US consumers may have few alternatives and be forced to absorb higher prices or cut back.
Global supply chains will also be impacted. While Indian exporters may reroute goods via lower-tariff partners like Mexico or Canada under USMCA, this strategy risks scrutiny under strict US rules of origin and potential penalties for non-compliance.
The higher US tariff rates on countries like China, Vietnam, and Bangladesh offer India a chance to boost its manufacturing capacity and trade with the US. With competing nations facing similar or higher tariffs than India, changing consumption patterns may benefit India in a long run.
Unlike China and the EU, India chose negotiation over retaliation, offering concessions like lower duties on Harley-Davidson bikes and US spirits. India is strategically leveraging the situation to seek reciprocal benefits—faster FDA approvals, relaxed visa norms, and cooperation in semiconductors and renewables. Talks on a Bilateral Trade Agreement (BTA) with the US have also resumed, aiming to build a more balanced partnership.
While US tariffs pose challenges for India’s exports, they also open doors for strategic recalibration. BTA talks may ease tensions through mutual trade-offs, but Indian businesses must adapt by managing costs, diversifying supply chains, and boosting competitiveness.
With 'Mission 500' aiming for USD 500 billion in trade by 2030, this tariff shift could spark a stronger, more resilient India-US partnership6. The coming months will reveal if it’s a setback—or a fresh start.
With the dynamics of trade changing daily, it has become critical to monitor developments closely and assess their impact in real-time. This evolving scenario demands specialised expertise to effectively manage and mitigate tariff-related impacts.
At Grant Thornton Bharat, we recognise these challenges and offer customised, comprehensive tax consulting and strategic advisory services to companies navigating this complex business environment.
Dipika Shetye, Manager, Grant Thornton Bharat, has also contributed to this article.
1. Mentioned in the Executive Order dated 2 April 2025 issued by Trump in The White House.
2. Reported by Ministry of External Affairs Government of India.
3. Reported by Automotive Component Manufacturers Association of India.
4. Mentioned in Fact Sheet dated 2 April 2025 released by the White House.
5. As per Ministry of Commerce and Industry.
6. India - U.S. Joint Statement during the visit of Prime Minister of India to US vide Press Release dated 14 February 2025 issued by Prime Minister’s Office.