US imposes 26% tariff on Indian imports: A major shift in global trade
Introduction
The United States has recently imposed a 26% tariff on Indian exports, a move that has generated considerable controversy in international trade forums. This policy, which will come into effect from April 9, 2025, is a component of an overall strategy to respond to trade imbalances, protect the interests of domestic industries, and retaliate against alleged unjust trade practices. This action is likely to have far-reaching implications on the Indian economy, bilateral trade between India and the United States, and international markets.
Background of the Tariff Decision
The Trump administration has been using tariffs as a key trade tool, arguing that the US needs protection from unfair trade practices, currency manipulation, and trade deficits. India, which currently has a $46 billion trade surplus with the US, has been accused of using non-tariff barriers that allegedly restrict US businesses.
The move was in line with the trend of raising tariffs on a number of countries, including:
China: 34%
EU: 20%
South Korea: 25%
Japan: 24%
Vietnam: 46%
The move reflects a protectionist direction, aimed at reducing the trade deficit and boosting local manufacturing.
Impact on Indian exports
Sectors most affected
Indian sectors that are highly dependent on exports to the US are going to suffer the most from these tariffs. The sectors most affected include:
Electronics and IT hardware
India sends over $10 billion worth of electronics to the US.
Higher tariffs could make Indian goods less competitive, benefiting substitute suppliers such as Vietnam and Mexico.
Gems and jewellery
The US is a significant buyer of Indian gold jewellery and diamonds.
If the tariff is 26%, demand will likely shift to other markets such as Hong Kong and Thailand.
Textiles and apparel
India’s textile sector exports over $8 billion to the US every year.
This industry already faces strong competition from Bangladesh and Vietnam, and tariffs could reduce its share even further.
Sectors with limited impact
Pharmaceuticals, a sector that exports over $9 billion annually to the US, has been largely spared from tariff hikes. This exemption is likely due to the important role Indian generic drugmakers play in providing affordable medicines to the US healthcare system. Following the announcement, stocks of major Indian pharmaceutical companies saw a 5% rise in response to the exemption.
Economic implications for India and the US
For India
The export-dependent Indian economy, which relies on exports to achieve growth, could suffer severe losses:
Loss of $2 billion to $7 billion in exports in FY26.
Lower employment in export-oriented sectors.
Potential decline in foreign direct investment (FDI) due to reduced investor confidence.
Increased drive for diversification to other markets, such as the EU and the Middle East.
For the United States
Although the US seeks to reduce its trade deficit, tariffs could lead to an increase in US consumer and business costs, including:
Increase in prices of goods such as clothing, electronics and jewellery.
Disruption in supply chains, as companies look for alternative sources.
Possibly inflationary pressures, as tariffs are passed on to customers.
Impact on US businesses dependent on Indian raw materials and intermediate goods.
India's response
Indian trade officials have called for retaliatory measures to respond to US tariffs. Ajay Srivastava, founder of GTRI, stressed on taking firm reciprocal action.
Possible Indian countermeasures
Increase in import taxes on US goods, including agricultural products, medical devices and technology products.
Pursuing closer trade ties with alternative trading partners, such as the EU, ASEAN and BRICS countries.
Increasing local production under the "Make in India" program to reduce dependence on exports.
India had earlier imposed retaliatory tariffs on US exports such as apples, almonds and steel in the trade standoff.
Global Market Reactions
The news of the tariffs jolted international financial markets.
Stock Market Reactions
Stock markets in Asia declined, with major indices falling by 2-4%.
Volatility in Indian stock markets, especially for export-oriented sectors such as textiles and IT.
Global investors withdrew funds, and turned to safe assets such as gold and bonds.
Possibility of global recession?
Economists have warned that a full-blown trade war could push the global economy into a stagnation or recession. Given the interconnected nature of supply chains, the impact of the U.S.-India trade dispute could ripple across Asia and beyond.
What happens next?
The following course of action largely depends on the negotiations between India and the U.S. Here are some key things to watch:
Possible trade talks between New Delhi and Washington could lead to a deal.
WTO intervention, as India may dispute the tariffs as unfair trade practices.
Long-term strategic changes in trade alliances and supply chain realignment.
Conclusion
The 26% US tariff on Indian exports is a turning point in India-US trade relations. Although it is aimed at serving US business interests, it risks seriously destabilising global trade. India's actions will determine whether this turns into a long-term trade war or leads to friendly negotiations. The next few months will determine how the economic relationship between the two countries evolves.
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