Trump's 'Liberation Day' Tariffs — Impact On India And Possible Response

US President Donald Trump is set to announce a slew of tariff measures against trading partners on Thursday, as he seeks to reduce the country's ballooning deficit and reshore manufacturing.

The US is one of India's largest trading partners, and the balance is heavily tilted in our favour. India's exports to the US reached $81 billion in 2024, accounting for 17.7% of total outbound shipments.

That's a grouse Trump has held against India, labeling it the "tariff king" during his first term. Notably, India's weighted average tariff rate on American imports is 12%, compared to the US' 3% on Indian goods.

Besides, Prime Minister Narendra Modi and Trump in February agreed to target $500 billion in bilateral trade by 2030.

Tariff Difference

Given India's higher tariff rate on US imports, certain sectors are more shielded from American competition.

As the chart below shows, the difference between Indian and US tariffs on certain labour-intensive and MSME-focused sectors is wide. Notably, Indian levies on animal products — an industry which employs millions of rural labour— are 30 percentage points more than what the US charges.

Most Vulnerable Sectors

Based on many tariff differentials and India's export balance to the US, the chart below shows the most vulnerable sectors to Trump's tariff proposals.

In terms of value, electrical machinery may see the strongest hit. Electronics, particularly mobile phones like iPhones, dominate India's exports to the US. If the US were to impose reciprocal tariffs on India, it would likely increase iPhone prices for American consumers.

Notably, India currently imposes a 15% duty on fully assembled phone imports, whereas the US has zero tariffs on the same. With existing 40% tariffs on Chinese imports, Apple Inc. may be further incentivised to shift production to India.

India's Options To Respond

In response to Trump's tariff plans, India can increase the imports of oil and natural gas from the world's top energy producer. Trump has vowed to ramp up US energy production with his "drill baby drill" pledge.

During his first term, New Delhi sought to assuage the president's trade worries by purchasing more liquified natural gas — seen as a cleaner but pricier alternative to other fossil fuels. India already pledged to increase energy imports by $10 billion to $25 billion.

It can also increase imports of US defence equipment, reduce tariffs on certain agri and food commodities as well as electric vehicles.

Here's a snapshot of India's likely options:

Auto and ancillary

• Reduce taxes on auto imports.

• Two-wheeler and car import tariff differential at 67.5 percentage points.

• However, high tariff could impact ancillary exports of over $2.1 billion.

Textiles and apparels

• US accounted for 28% of India's textile exports.

• Even with tariffs, India could remain competitive compared to China due to the 40% incremental tariffs. But it could lose market share to Vietnam and Bangladesh.

• One of the ways of mitigating this would be to lower India's tariffs on US cotton imports.

• More than half of textile and apparel imports in India are US cotton. Reducing that could equalise or lower differentials.

Pharma

• Overall pharma and related imports are around $800 million.

• The tariff differential is 7.6 percentage points.

• India can lower tariffs.

Food and related commodities

• High tariffs have been a barrier for protecting domestic production.

• India can lower tariffs on alcohol, categories of prepared food and beverages that are currently more than 100%.

Steps India Can Take To Lower US Tariffs Impact | Watch