Donald Trump’s Liberation day is here – it’s indeed one of the biggest days in American politics and a historic day for global trade, with the US president all set to announce a series of reciprocal tariffs. The levies, as Trump had insisted, is a response to high tariffs being charged from American companies, especially from nations like India, and China. Contrary to expert views, Trump claims this policy will free the United States from its reliance on foreign goods and is part of his “America First Trade Policy” aimed at bolstering US manufacturing and addressing perceived unfair trade practices.
US President Trump is making last-minute decisions on his plans to impose reciprocal tariffs and his team is reportedly still working out the details regarding the scale and coverage of the new levies. In a meeting on Tuesday, his team continued to hash out their options ahead of the Rose Garden event scheduled to begin as US markets close at 4 p.m. on Wednesday, people familiar with the ongoing discussions told Bloomberg.
How will the tariffs be decided?
US reciprocal tariffs will be levied not just based on tariffs imposed by partner countries, but also the VAT, exchange rate deviation from market value and non-tariff barriers.
India and US – A love-hate relationship?
Trump has frequently labeled India as the “tariff king”, criticizing the nation for imposing high tariffs on US goods. He has highlighted instances such as India’s tariffs exceeding 100 per cent on U.S. auto imports, describing these measures as “very unfair and strong”. However, India’s Prime Minister Narendra Modi and Trump recently met in February post which the US President praised Modi’s leadership, calling him a “very smart man” and a “great friend”.
“India is one of the highest tariffing nations in the world… They’re very smart. He (PM Modi) is a very smart man and a great friend of mine. We had very good talks. I think it’s going to work out very well between India and our country. And I want to say you have a great prime minister,” he had said then.
Currently, US goods face a weighted average tariff of 7.7 per cent in India, while Indian exports to the US attract only 2.8 per cent, leading to a 4.9 per cent difference.
While the US is pushing India to reduce high tariff barriers for all American goods, India has, over the past few days or rather months, tried to appease the Trump administration with various steps. In February, India had announced tariff cuts on motorcycles and bourbon. Basic customs duty on completely built-up (CBU) units was reduced from 50 per cent to 40 per cent for engine capacities up to 1600cc and from 50 per cent to 30 per cent for those above 1600cc. For Bourbon whiskey, effective import duties have been lowered to 100 per cent under a specific deviation. Import duties on carrier-grade Ethernet switches were cut from 20 per cent to 10 per cent. Synthetic flavouring essences and mixtures of odoriferous substances saw tariff reduction from 100 per cent to 20 per cent. Basic customs duty on fish hydrolysate, used in manufacturing aquatic feed, was slashed from 15 per cent to 5 per cent.
Recently, India proposed to withdraw a 6 per cent “equalisation levy” imposed on online advertisements. The step, introduced as one of the 59 amendments proposed in the Finance Bill 2025, follows a similar revocation of a more substantive 2 per cent levy on non-resident e-commerce operators last year.
A couple of days ago, India and the United States wrapped up a key round of negotiations for a proposed bilateral trade agreement. The four-day trade talks focused on deepening bilateral cooperation in several priority areas, including enhancing market access, reducing tariff and non-tariff barriers, and integrating supply chains in a mutually beneficial manner.
The bilateral trade between India and the US reached $119.71 billion in 2023-24. India’s exports to the US stood at $77.51 billion, while imports from the US came in at $42.19 billion, resulting in a trade surplus of $35.31 billion for India. India has also received $67.8 billion in foreign direct investment (FDI) from the US between April 2000 and September 2024.
Key sectors that should brace for impact from US tariff
Electronics industry:
India’s electronics sector, particularly smartphone exports, is facing potential risks due to tariff hikes which are expected to range from 1.2 per cent to as high as 10.8 per cent. India’s electronics exports to the US totaled $11.1 billion in FY24, making up 14 per cent of the country’s total exports to America. The US, in turn, accounts for 32 per cent of India’s electronics exports. A sectoral tariff differential of 9 per cent could hit this industry hard, analysts said.
Now, over 50 per cent of India’s electronics exports to the US consist of Apple iPhones which are assembled in India. Higher duties could raise the cost of these devices for US consumers, potentially impacting demand. This may also mean companies like Apple may stop manufacturing in India.
Pharmaceutical industry:
India supplies 47 per cent of US generic drug imports and is a vital partner in America’s healthcare system. Donald Trump has announced the likely imposition of 25 per cent tariffs on imported pharmaceuticals. The decision is poised to significantly impact India’s pharma industry which is a major supplier of generic drugs to the United States. Going forward if the tariffs are imposed, it is feared that pharma exports to the US would shrink as the higher tariff would make Indian drugs expensive. Now, Kotak Institutional Equities (KIE) analysed the base and worst case scenarios in the event of the tariff hike. “In the backdrop of uncertainties around US tariffs on pharma, our base case is high tariffs (>10 per cent) are unlikely to be levied as those are impractical. However, in the worst-case scenario of high tariffs, companies would be forced to prune their US portfolio (completely exit in some cases) after exhausting other avenues like passing on the higher costs to US customers,” the brokerage firm said.
While some pharma companies are considering relocating manufacturing operations to the US to circumvent the tariffs, many drugmakers are lobbying the US President to phase in tariffs on imported pharmaceutical products in hopes of reducing the sting from the charges and to allow time to shift manufacturing, a Reuters report stated citing four sources familiar with the discussions.
Automobiles industry:
On March 26, Trump had announced a 25 per cent tariff on completely built vehicles (CBUs) and auto parts. The automobile industry is bracing for a 25 per cent tariff from the US on imported cars and components from April 3. This will impact finished cars and trucks, as well as imported parts that are assembled in the US. Notably, India’s export of fully assembled passenger vehicles to the US is relatively modest, with exports valued at $8.9 million in 2024, indicating that the tariffs are unlikely to have a significant direct effect on Indian vehicle manufacturers.
On automobile parts, India is a more serious contender, with the country’s share of auto component exports to the US being significant at 28 per cent. Within this, Crisil said, powertrain parts, transmissions, engines, and electricals account for 40 per cent, 29 per cent, 13 per cent and 2 per cent, respectively. Cumulatively, they account for around 84 per cent of all automotive component exports from India to the US. “The share of exports in India’s automotive production stands at just 15 per cent, which means the exposure of domestic component manufacturers to the US is small at 4.2 per cent. Further, accounting for the components under tariffs, this exposure would whittle down further to 3.5 per cent of the annual revenue from auto components, thus limiting impact,” Crisil said.
Furthermore, the consequences of this will also be extended to the wallets and choices of American consumers with the likely higher prices at dealerships.
Semiconductor industry:
Trump’s 25 per cent tariff on semiconductor imports is poised to have significant ramifications for the global semiconductor industry, however, its immediate impact on India’s semiconductor sector is expected to be minimal. First, India’s semiconductor ecosystem is still in its early stages and the country does not currently export chips. Second, even as India moves ahead and the sector expands, it is expected to follow a ‘chip manufacturing-as-a-service’ model. This means chips produced in India will cater to global clients, not just the US. In an analysis report by Nomura, “We believe the direct impact of higher chip tariffs on Asia will be limited, as there is limited scope for substitution (inadequate fab capacity in the US and concentration of advanced nodes in Asia), which gives the region some bargaining power, especially amid the price inelasticity of US demand for AI chips. The cost will mainly be borne by the US.”
At present, five semiconductor projects are underway in India, including an assembly, testing, marking, and packaging (ATMP) unit by Micron, a fabrication and OSAT unit by the Tata Group, and OSAT units by Kaynes and CG Power.
Chemical industry:
The US has also said that it will impose reciprocal tariffs on the chemicals industry. Currently, India applies a 10 per cent tariff on organic and miscellaneous chemicals, while the US imposes an average tariff of 3 per cent on similar products. The US is a significant market for Indian chemical exports, and the imposition of these tariffs could affect trade dynamics between the two countries. The 10 per cent tariff already imposed by the US on China may level the playing field for Indian companies. Now, Indian companies could either increase selling prices to protect their margins or India may consider reducing tariffs on its chemical imports from the US, which largely comprise commodity chemicals or imports of agrochemicals by local arms of MNCs (such as Corteva or FMC) from their global parents. A third option may be to re-route chemical shipments through other countries, but its practicability needs to be considered case by case.
Textile industry:
India’s textile and apparel exports to the US totaled $9.6 billion in FY24, accounting for 28 per cent of the industry’s total exports. This sector faces competition from countries like Bangladesh and Vietnam, which could gain a cost advantage if Indian goods become more expensive due to tariffs.