Can India follow the Chinese model with retaliatory tariffs against the US duties on Indian goods as US president Donald Trump, despite his bonhomie with Indian premier Narendra Modi, publicly declared that Indian tariffs on US products were among the highest and so why not increase the tariffs on Indian products.
It is feared that India’s twin top industrialists Gautam Adani and Mukesh Ambani, claimed to be the beneficiaries of the BJP government led by the premier Narendra Modi, who have a wide footprint in industry from manufacturing to infrastructure to informational technology will be hit badly by the US tariffs while India’s top banker SBI claims that the US tariffs impact on Indian industry would be limited.
However, Indian exporters are worried about US reciprocal tariffs, but a new report from SBI Research has indicated that the impact will be limited. India is one of the largest exporters of Basmati rice, garments, handicrafts, gems and jewellery and some infrastructure products such as cement and steel competing with China and southeast Asian countries and its own neighbouring countries in the south Asia region. US reciprocal tariffs are set to take effect from April 2. US tariffs may cut Indian exports by only 3-3.5%, says SBI Research. India’s diversified exports to offset US tariff impact. India is well-placed to absorb the impact of US reciprocal tariffs, say experts.
According to the report, US tariffs may only lead to a 3-3.5% decline in exports, and India’s growing exports in manufacturing and services will negate the impact of reciprocal tariffs.
SBI Research pointed out that India has diversified its export mix, improved value addition, and is shifting supply chains through new routes, including a corridor from Europe to the US via the Middle East. It also highlighted that India could take advantage of aluminium and steel tariffs imposed by the US last week.
The country has a small trade deficit of $13 million in aluminium products and $406 million in steel products with the US. While India isn’t a major steel exporter there, it is among the top 10 in aluminium, though its share has dipped from 3% to 2.8% between 2018 and 2024, official data shows.
The research also tells US tariffs will influence India’s free trade agreements (FTAs). “India is negotiating FTAs with the UK, Canada, and the EU, targeting sectors like services, digital trade, and sustainable development,” the report said.
“The FTA with the UK alone is expected to increase bilateral trade by $15 billion by 2030. Future FTAs will focus on enhancing digital trade, with projections indicating that the digital economy could add $1 trillion to India’s GDP by 2025,” it added.
SBI has also warned about the US economy slowing down. “Long trends indicate possible downturn in US economy GDP growth along with slowdown in US exports and consumption The overall value add is showing declining trend with shrinking TFP growth. High US wages could hold back new investment. Net savings to GDP is also at the lowest level since 2011, second lowest since 1951,” the report mentioned.
Despite the tariff changes and global trade shifts, SBI’s research suggested India is well-placed to absorb the impact while strengthening new trade deals and economic ties.
New Delhi also must boost value addition, tap new markets, and establish alternative trade routes from Europe to the US through West Asia, reshaping global supply chains, experts on export trade opined.
The post-covid surge in the US economy may have been an outlier driven by policy stimulus, with long-term trends pointing to a potential slowdown in GDP growth, exports, and consumption. India could benefit amid rising global trade uncertainties and tariff shifts amid a declining trend in US value addition, shrinking total factor productivity (TFP) growth, and the lowest net savings-to-GDP ratio since 2011, one of India’s top bankers the State Bank of India noted.
Big deficit
The US had a merchandise trade deficit of $35.32 billion with India in FY24. India’s merchandise trade with the US last fiscal amounted to $119.72 billion, with exports at $77.52 billion and imports at $42.20 billion, according to data available from the commerce ministry.
During the April-December period of FY25, India exported goods worth $60.04 billion to the US, and imports were worth $34.30 billion, up 5.76% and 4.63% annually. The US remains one of India’s largest trading partners along with China, Russia, and the UAE.
“India has been talking about free trade agreements (FTAs) with several partners – both bilateral and regional – in a bid to boost export-oriented domestic manufacturing…These FTAs cover a wide array of topics, such as tariff reduction impacting the entire manufacturing and the agricultural sectors; rules on services trade; digital issues such as data localization; intellectual property rights that may have an impact on the accessibility of pharmaceutical drugs; and investment promotion, facilitation, and protection,” the banker was quoted by multiple Indian publications.
“The shift towards regional supply chains and the impact of geopolitical changes, such as the US tariff war are influencing India’s FTA strategies to ensure alignment with global trade dynamics,” it said.
The report noted the US plan to impose a 25% tariff on all steel and aluminium imports may benefit India, which runs a trade deficit of $13 million in aluminium and $406 million in steel with the US.
“US imports of steel and aluminium have shown an upward trend despite the trade war beginning in 2018. Primary steel imports reached $31 billion in 2024, showing an increase from $29.5 billion in 2018,” it added.
How does the US face the impact of its import duties while taking in made in India pharma products?
Millions of Americans could see the cost of medicines shoot up if Trump imposes tariffs on Indian drugs. With Donald Trump’s tit-for-tat tariffs on India looming next month, millions of Americans may have to brace for steeper medical bills. Last week, Indian Commerce Minister Piyush Goyal made an unscheduled trip to the US for discussions with officials, hoping to strike a trade deal. But what happened in the meetings, no one knows!
It followed Trump’s announcement that he would impose tariffs – which are government taxes on imports – on India by 2 April, in retaliation to India’s tariffs on American goods. Goyal wants to stave off tax increases on India’s critical export industries like medicinal drugs.
Nearly half of all generic medicines taken in the US come from India alone. Generic drugs – which are cheaper versions of brand-name medications – imported from countries like India make up nine out of 10 prescriptions in the US. This saves Washington billions in healthcare costs. In 2022 alone, the savings from Indian generics amounted to a staggering $219bn (£169bn), according to a study by consulting firm IQVIA.
Without a trade deal, Trump’s tariffs could make some Indian generics unviable, forcing companies to exit part of the market and exacerbating existing drug shortages, experts say.
Tariffs could “worsen the demand-supply imbalances” and the uninsured and poor will be left counting the costs, says Dr Melissa Barber, a drug costing expert from Yale University. The effects could be felt across people suffering from a range of health conditions.
Over 60% of prescriptions for hypertension and mental health ailments in the US were filled with Indian-made drugs, according to the IQVIA study funded by the Indian Pharmaceutical Alliance (IPA).
Sertraline, the most prescribed anti-depressant in the US, is a prominent example of how dependent Americans are on Indian supplies for essential drugs. Many of them cost half as much as those from non-Indian companies.
“We are worried about this,” says Peter Maybarduk, a lawyer at Public Citizens, a consumer advocacy group fighting for access to medicines. One in four American patients fail to take medicines due to their costs, he claimed.
Trump is already reportedly facing pressure from US hospitals and generic drugmakers because of his tariffs on Chinese imports. The raw materials for 87% of the drugs sold in the US are located outside the country and primarily concentrated in China which fulfils around 40% of global supply.
With tariffs on Chinese imports rising 20% since Trump took office, the cost of raw materials for drugs has already gone up. About 60% of prescriptions for hypertension and mental health ailments in the US are filled with Indian-made drugs
Trump wants companies to shift manufacturing to the US to avoid his tariffs.
Big pharma giants like Pfizer and Eli Lilly, which sell brand name and patented drugs, have said they are committing to move some manufacturing there. But the economics for low-value drugs do not add up.
Dilip Shanghvi, chairperson of India’s largest drugmaker Sun Pharma, told an industry gathering last week that his company sells pills for between $1 and $5 per bottle in the US and tariffs “do not justify relocating our manufacturing to the US”.
“Manufacturing in India is at least three to four times cheaper than in the US,” says Sudarshan Jain of the IPA. Any quick relocation will be next to impossible. Building a new manufacturing facility can cost up to $2bn and take five to 10 years before it is operational, according to lobby group PhRMA.
India exports some $12.7bn worth of drugs to the US annually, paying virtually no tax. US drugs coming into India, however, pay 10.91% in duties.
This leaves a “trade differential” of 10.9%. Any reciprocal tariffs by the US would increase the costs for both generic medicines and specialty drugs, according to GTRI. It flags up pharmaceuticals as one of the sectors that is most vulnerable to price increases in the US market.
Indian firms which largely sell generic drugs already work on thin margins and won’t be able to afford a steep tax outgo. They sell at much lower prices compared to competing peers, and have steadily gained dominance across cardiovascular, mental health, dermatology and women’s health drugs in the world’s largest pharma market.
“We can offset single-digit tariff hikes with cost cuts, but anything higher will have to be passed down to consumers,” the finance head of a top Indian drugmaker who didn’t want to be identified, the BBC reported. North America is their biggest revenue source, contributing a third of the earnings and profitability of most companies.
“It is the fastest growing market and most crucial. Even if we increase exposure to other markets, it will not adjust for any loss in the US market,” the finance head said.
Umang Vohra, CEO of India’s third-largest drug firm Cipla, said at a public gathering recently that tariffs should not dictate what businesses do, “because there is a risk that four years later, those tariffs may go away”.
But four years is a long time and could make or break the fortunes of several companies.
India has agreed to cut tariffs “way down”, Donald Trump said recently.
To avoid any of this, “India should just drop its tariffs on pharma goods”, Ajay Bagga, a veteran market expert, told the BBC. “US drug exports into India are barely half a billion dollars, so the impact will be negligible.” The IPA, which consists of India’s largest drug makers, has also recommended zero duty on US drug exports so that India isn’t negatively impacted by reciprocal levies.
Indian Prime Minister Narendra Modi’s government recently added 36 life-saving drugs to the list of medicines fully exempted from a basic customs duty in the budget, and President Trump dropped a hint last week that India could be yielding to his pressure.
India has agreed to cut tariffs “way down”, he said, because “somebody is finally exposing them for what they have done”.
Delhi has not responded yet, but pharma players in both countries are nervously waiting to see the specifics of a trade deal that could have a bearing on lives and livelihoods.
“In the short term, there may be some pain through new tariffs, but I think they’ll make significant progress by the fall of this year for a first tranche [trade] agreement,” Mark Linscott, Senior Advisor at US-India Strategic Partnership Forum, told the BBC, adding that neither country could afford a breakdown in pharma supply chains.
Will Trump’s Tariffs Derail India’s Economy? Yes indeed, says prominent opposition Congress member Shashi Tharoor says. He is a former top official of the United Nations who ran for the Secretary Generals post and did not receive Indian governments endorsement.
The US administration’s plan to impose “reciprocal” import tariffs could severely curtail key Indian exports, including chemicals, metals, auto parts, and pharmaceuticals, leading to job losses and undermining fiscal stability. India has little choice but to lower its own tariffs while negotiating improved access to the US market, he says.
Jayati Ghosh thinks the paradigm shift in US foreign policy could end up strengthening global solidarity.
Trump’s unpredictability offers little solace. While he recently suspended tariffs on cars and automobile parts from Mexico and Canada for one month – ostensibly to give US automakers time to ramp up domestic production – any hope that India might receive similar exemptions is, at best, wishful thinking, Tharoor wrote in Project syndicate.
During his February visit to the United States, Indian Prime Minister Narendra Modi did achieve an important goal: a nine-month negotiation process, set to conclude by autumn, on a new bilateral trade deal. But this timeline has no bearing on the reciprocal tariffs set to take effect next month. In his March 4 State of the Union address, Trump singled out India as a major tariff abuser and reiterated his commitment to imposing reciprocal duties.
The economic impact on India, which runs a trade surplus with the US, could be significant. India exported goods worth nearly $74 billion to the US in 2024, and estimates suggest that Trump’s new tariffs could cost the country up to $7 billion annually.
But the implications could be much more far-reaching. One analysis estimate that India effectively imposes a 9.5% tariff on US goods, while US levies on Indian imports are only 3%. If Trump follows through on his pledge of full tariff reciprocity, that imbalance will vanish – along with the cost advantages many Indian exporters currently enjoy.
Indian products will become less competitive, leading to a decline in export revenues and job losses, especially in labour-intensive industries. Critical sectors – including chemicals, metals, jewellery, automobiles and auto parts, textiles, pharmaceuticals, and food products – are expected to be hit the hardest.
The impact of reciprocal tariffs also depends on their structure – specifically, which products they target and how broadly they are applied. Will tariffs be imposed on entire categories of goods, such as fruit, or specific items, like apples, which India does not export to the US? If the tariffs apply to broad categories or single out major Indian exports like mangoes and oranges, they could significantly restrict India’s access to the US market.
This would put India in a difficult position: negotiate an exemption or urgently seek alternative markets. While Indian officials have rushed to Washington, hoping to gauge the Trump administration’s intentions before the reciprocal tariffs kick in, it appears they have found little clarity, says Tharoor.
Trump’s 25% tariff on automobile parts would undoubtedly hurt India, a major producer. India is a major hub for global automakers for making small cars. But Indian exporters are no more vulnerable than their counterparts in Mexico and China. If US tariffs are applied to all countries, they will drive up costs for everyone.
The greater risk for India lies in the potential long-term impact on the US automotive industry, which relies heavily on imported parts. If Trump’s tariffs lead to a massive resurgence of domestic manufacturing and a sharp decline in imports, Indian suppliers will inevitably suffer. But such a shift would take time, and given existing wage disparities, US-made parts will likely remain more expensive than Indian imports.
With projections suggesting that lower exports could cause India’s annual GDP growth to slow significantly, Modi’s government has scrambled to placate the Trump administration with pre-emptive concessions. The 2025-26 Union budget cuts tariffs on US-made bourbon, wines, and electric vehicles. Even Harley-Davidson motorcycles, a frequent point of contention for Trump, will now cost less in India.
Will that be enough to placate Trump? If the US matches India’s 10% tariff on American pharmaceutical imports, it could eliminate Indian manufacturers’ current cost advantage. This is no small concern, given that pharmaceutical exports to the US account for about 31% of India’s total exports. That reflects India’s significance as a producer of the generic drugs sold in US pharmacies. If Trump’s tariffs drive up consumer prices, would US companies start producing generic drugs domestically, potentially undermining India’s most lucrative export sector?
Then there are the unknown unknowns. Will the Trump administration impose even higher tariffs on other countries that compete with India for the US market? And if Indian exporters lose access to the US market, could they find alternative buyers?
Trump has already touted his success in dealing with India. During a recent White House briefing, he declared, “India charges us massive tariffs, you can’t even sell anything into India. It’s almost restrictive.” But he claimed that India had “agreed to cut their tariffs way down now because somebody is finally exposing them for what they have done.” Tharoor wrote.
Modi’s government has been quick to downplay the perception that it yielded to US pressure. But Trump’s remarks are bound to trigger intense soul-searching among Indian policymakers. India has long used tariffs to protect its domestic industries, particularly agriculture, automobiles, and electronics. Reducing tariffs could expose these industries to fierce import competition, threatening local businesses and jobs.
India’s deep-seated preference for protectionist policies, rooted in its colonial past, will not be easily abandoned. Given that tariffs also serve as a vital source of government revenue, a sudden reduction could disrupt fiscal stability, especially when India must juggle competing economic priorities, such as infrastructure investment and funding essential welfare programs.
Some concessions, of course, will be unavoidable. In the coming months, India will have little choice but to explore strategic tariff reductions in select sectors while negotiating broader trade benefits and improved access to the US market.
Admittedly, preserving India’s economic sovereignty while making meaningful concessions to maintain strong trade ties with the US will require a delicate balancing act. With the October deadline for a bilateral trade deal looming, the stakes of striking the right balance could not be higher.
Shashi Tharoor, a former UN under-secretary-general and former Indian Minister of State for External Affairs and Minister of State for Human Resource Development, is an MP for the Indian National Congress and Chairperson of the Parliamentary Standing Committee on External Affairs. He was re-elected to the Lok Sabha for a fourth successive term, representing Thiruvananthapuram. He is the author, most recently, of Ambedkar: A Life (Aleph Book Company, 2022).
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