US recalibrates tariff on India to 26%, China fires back with retaliation and WTO complaint

As the US recalibrates its reciprocal tariff policy following a data miscalculation, India will now face an additional 26% tariff across a range of commodities starting 9 April. This marks a slight downward revision from the 27% hike announced on 2 April after the US administration corrected its trade deficit computations. The change, while marginal, comes at a time of growing concern over the potential global fallout of tit-for-tat trade measures.

The 26% additional tariff will apply over and above the current Basic Customs Duty (BCD) rates on various commodities.

The reciprocal tariff move is part of Washington’s broader strategy to enforce a baseline 10% tariff on imports from 57 countries, including several key Asian partners.

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A White House document updated on Friday shows that the Trump administration has revised reciprocal tariffs for at least 14 countries, including India.

India’s rate was 26% during President Donald Trump’s public announcement on 2 April at the White House Rose Garden. However, the official annex-I listed the rate as 27%. With the revision, India will face the indicated 26% additional duty.

President Trump, while calling Indian Prime Minister Narendra Modi a friend, had accused India of not treating the US "right." The reciprocal tariff, part of his protectionist economic policy, is aimed at boosting domestic manufacturing and addressing trade deficits. The US trade deficit with India stood at $35.31 billion in 2023-24.

Several other countries saw similar discrepancies in tariff rates. For example, South Korea’s tariff rate was first announced at 25%, then listed as 26% in the annex, before reverting to 25%. Other nations experiencing recalibrated rates include Botswana, Cameroon, Malawi, Nicaragua, Norway, Pakistan, the Philippines, Serbia, South Africa, Thailand, Vanuatu, and the Falkland Islands.

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Meanwhile, China has responded forcefully. It announced a 34% tariff on all US imports from 10 April—a mirror response to the US rate imposed on Chinese goods. Beijing also stated that it would take the matter to the World Trade Organization (WTO) and impose export controls on several rare earth elements critical to producing medical devices and electronics.

India’s wait and watch approach

However, Indian government officials said that they are closely monitoring trade-related developments and assessing the evolving situation.

“The trade dynamics between the US and China are quite different from our equation with Washington. India has built a robust manufacturing ecosystem and is increasingly positioning itself as a global supplier of goods,” said an official who did not want to be named.

Queries emailed to the commerce ministry on this matter did not receive an immediate response.

China's swift retaliation has unsettled global markets. On Thursday, the S&P 500 in the US dropped 4.8% in its worst one-day performance since the covid pandemic. The ripple effect was felt globally, with Tokyo’s Nikkei closing 2.8% lower and European indices also taking a hit. Frankfurt was down 5% by midday Friday, Paris fell more than 4%, and London declined by nearly 3.8%.

Japan’s Prime Minister Shigeru Ishiba termed the tariff escalation a "national crisis," reflecting growing unease among major economies.

Back home, Indian trade experts are approaching the situation cautiously. While China and the US are locked in an increasingly hostile tariff war, India seeks to avoid being drawn into the fray.

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Trade analyst Ajay Srivastava, the founder of the Global Trade Research Initiative (GTRI), has warned against India aligning too closely with either side. “With both powers slapping 34% tariffs on each other—raising total US tariffs on Chinese goods to 54%—China’s retaliation is expected to create a glut of US soybeans and corn, commodities China heavily imports from the US," Srivastava said.

The GTRI founder further added that any Indian move to allow imports of corn for ethanol blending or to lower tariffs on American agricultural goods could be viewed by China as taking sides.

US Trade Representative report

The US Trade Representative’s (USTR) National Trade Estimates report, released on 31 March, noted that India prohibits ethanol import for fuel use and requires a Directorate General of Foreign Trade (DGFT) license for non-fuel ethanol imports.

"This applies to more products. Doing this could trigger a backlash from China, including a possible halt in critical exports like electronics and machinery, as seen in recent months," GTRI’s Srivastava said.

Also Read: Indian equities, bonds, currency show resilience amid Trump's tariff tantrum

"At a time when two global giants are locked in an economic showdown, India must prioritize its interests and avoid being dragged into a conflict, not of its making. Neutrality is not just diplomacy—it is strategy," he added.

Key takeaways

1. The US has recalibrated its tariff policy and will impose an additional 26% tariff on a range of Indian commodities, effective 9 April.
2. In response to the US tariff hikes, China has announced a 34% tariff on all US imports, starting 10 April.
3. Beijing intends to drag the US to the World Trade Organization (WTO) over the tariff issue and impose export controls on rare earth elements crucial for medical devices and electronics.
4. China's swift retaliation has unsettled global markets, leading to significant drops in major stock indices in the US, Japan, and Europe.
5. Indian government officials are monitoring the developments but emphasize that India's trade dynamics with the US differ from the US-China equation.