New Tariff announcement by Donald Trump: What's new for India?

U.S. President Donald Trump announced a sweeping range of tariffs on April 2, 2025, of the “Liberation Day” initiative to address the ongoing trade imbalances and support domestic industries. India will pay a significant 26% reciprocal tariff on its exports to the United States, which would have serious consequences for its economy and future trade relations. But what does this mean for India? Scroll down to read more!

First Let’s Know the Tariff Structure 

 

The newly announced tariffs imposes a 10% baseline duty on all imports to the U.S. In support of the 26% tariff on India, the U.S. explained it was imposed because India has high tariffs on U.S. imports (70% on passenger vehicles and 50% on apples, for instance). Overall, the new tariff policy is part of Trump’s overall protectionist policies to make trade “fair and reciprocal.”

 

Economists believe that India will impose retaliatory tariffs that would raise duties on U.S. products in areas such as agriculture, medical equipment, and motorcycles. Trade organizations also expressed concern that small and medium enterprises (SMEs) in India, which import U.S. products, could struggle to absorb the added cost and be forced to reduce profit potential or lay off personnel.

Which Indian Sectors are at Risk?

There are several important sectors of Indian exports that face potential impacts from these tariffs – 

 

• Electronics: With approximately $14 billion in exports, the electronics industry may become less competitive in the U.S. market. This could require Indian companies to search for alternate markets in Europe and Southeast Asia because of increased costs.  
• Gems and Jewelry: The gems and jewelry industry, which amounts for around $9 billion in exports, could see a declining demand by consumers in the U.S. if prices rise. Since the U.S. is one of the largest markets for Indian manufactured jewelry, manufacturers will need to change their consumer base. 
• Aluminium and Auto Parts: These industries are also at risk as they may face impacts on export volumes and exports revenues. To date, global aluminum prices are already under pressure. A tariff could further increase the pressure on Indian aluminum manufacturers that rely on demand in the U.S. 
• Textiles and Apparel: The textiles and apparel industry is another major source of India’s exports and could see increased competition from low-cost manufacturers from Bangladesh and Vietnam that are not subject to tariffs. 

 

Pharmaceuticals and energy products were notably exempted from the new tariff as some relief to those industries. The United States still relies on India for generic drugs and the new tariff policy excluding the pharmaceuticals from tariffs clearly shows the crucial role of India in the supply chain of global healthcare. 

 

Impact on the Stock Market 

These tariffs will most likely lead to a spillover impact on the Indian stock exchange. Companies with a significant dependency on exports to the U.S. from the certain affected sectors could be exposed to stock price variation. Investors may remain wary of risks and this may lead to volatility in the market in the short term. In addition, there could be indirect impacts on India’s IT sector, which is a considerable revenue earner from the U.S. Software exports are not explicitly affected, however, a decline in trade relations may cause nervousness over the breadth of visa policy restrictions or outsourcing limitations under a Trump administration.

 

Next Step from India & Strategic Considerations 

 

In light of these developments, India has shown a readiness to enter into negotiations to reduce tariffs on $23 billion worth of U.S. imports. This would calm tensions and possibly lead to a new trade agreement. Additionally, with the U.S. imposing higher tariffs on some Chinese products, India believes there is an opportunity to gain trade to textiles, apparel, footwear, or steel. 

 

Industry leaders have pressed the Indian government to look for new trading opportunities, promote greater domestic production, and invest in export industries. Similarly, there is a corps of support for policies that grow “Make in India” initiatives aimed at reducing U.S. dependence and promoting India’s self-sufficiency in certain manufacturing industries.  

 

Economic Implications

The imposition of these tariffs represents a step of a more overarching protectionist agenda, which could come at a significant economic cost. Critics contend that these policies could raise consumer prices, disrupt supply chains, and complicate international relations. Countries around the world have reacted with concern, and have begun to call for dialogue to avoid an all-out trade war. For India, there is an urgent need to reevaluate its trade policies and strengthen domestic manufacturing to mitigate the effects of such tariffs going ahead. Enhancing its trade relationships with other partners such as the European Union, ASEAN countries, and Africa could help distribute risk and decrease over-dependence on the U.S. market.

 

What’s in Store for the Future?

 

President Trump’s 26% reciprocal tariff on Indian exports is an important development in U.S.-India trade relations. It points to challenges for some sectors of Indian industry, but can also help facilitate negotiations towards an eventual reopening of trade dialogue, and help diversify export markets. As the global trade environment shifts, India’s specific strategic response in the following months, will be a key determinant of its economic future and its presence in international trade.In the coming months it will become apparent whether either India or the U.S. can arrive at a middle ground, whether this escalation tariff will ricochet into more economic confrontation or emergence. Regardless of the impact, an overarching goal of India’s potentially long-term strategy will remain, seeking to reduce dependence on one market, and seek its next growth opportunity.