India eyes swift trade pact with US amid higher tariff pressures on Asian rivals, no tit-for-tat planned

New Delhi: US President Donald Trump’s tariff thunderbolt sent shockwaves across world capitals on Thursday, turning the clock back on globalization and raising fears of a tariff war. For India, however, the strategy is to avoid countermeasures, tie up a trade deal swiftly, and explore opportunities once the dust settles.

While the European Union is preparing retaliation, Japan is seeking exemptions and China has vowed countermeasures, India’s goal is to conclude a Bilateral Trade Agreement (BTA) with the US early, even as levies as high as 27% kick in next week, on top of existing tariffs.

With steelworkers and auto executives in attendance at the White House Rose Garden, Trump declared steep tariffs targeting friends and foes alike, the highest the US has seen in nearly a century. Starting at 10%, the so-called reciprocal tariffs soar to 54% in the case of China, igniting fears of a trade war that could redefine the world economy.

“Discussions between Indian and US trade teams are underway for a multi-sectoral Bilateral Trade Agreement (BTA) covering supply chain integration, investments and technology transfers," a commerce ministry statement said.

While sectors such as engineering goods, seafood, agri-products, speciality chemicals and gems and jewellery are expected to face the brunt of the new tariffs, opportunities may open in others such as toys, textiles, leather and solar panels, while the pharma sector remains unaffected for now. The IT sector, though not directly affected by the tariffs, is expected to face the heat as uncertainty prompts clients to defer discretionary spending.

Fear street

Meanwhile, losses raced through world markets: The S&P 500 Index tumbled 4% and the tech-heavy Nasdaq 100 dropped by almost 5% shortly after the opening bell, wiping out some $3 trillion of stock-market value. Companies like Apple Inc., Nike Inc. and others dependent on overseas production sank. The dollar tumbled by the most in at least two decades as investors pulled back from the US, sending the euro, yen and Swiss franc surging. Oil fell on expectations that demand will drop, while Treasuries rallied. Indian markets closed 0.35% lower earlier in the day.

Tariffs are "a negative for global GDP, negative for India and Indian markets," said Sanjiv Prasad, co-head (institutional equities) Kotak Institutional Equities. "This would lead to earnings downgrades, impacting sectors such as chemicals, engineering goods and even IT, because even though it's a tax on goods imports, it will lead to slowdown in demand and eventually in corporate spends on IT. Even though pharma is exempt for now, it might not be for long. Some domestic focused businesses will be less affected but overall, it's negative," Prasad added.

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Goldman Sachs Group Inc., Bank of America Corp. and others warned that the tariffs, no matter the specifics, would deepen the selloff in equities. Fears of a recession in the US have been growing even before the latest tariffs. On 31 March, Goldman Sachs said it sees the probability of a recession in the US in the next 12 months to around 35%, double the earlier projection.

India will face an additional import duty of 27% in the US, slightly lower than its key trade competitors such as China (54%), Bangladesh (37%), Thailand (36%), Indonesia (32%) and other Asian countries. This offers India some temporary relief, particularly as it is increasingly viewed as a new destination under the 'China Plus One' policy followed by many global manufacturers.

Reaffirming India’s commitment to its strategic partnership with the US, the commerce ministry said trade ties remain a pillar of mutual prosperity. “The government is carefully assessing the impact of these tariffs and remains in close consultation with Indian industry and exporters. Keeping in view the vision of Viksit Bharat, we are studying the opportunities that may arise from this development while also ensuring that India’s economic interests are safeguarded," the ministry said.

The latest Trump tariffs have left analysts scratching their heads about the impact on various sectors, given that details of the duties on different products are yet to be ascertained. According to a second person, a clearer picture on the impact and opportunities of the tariffs will emerge only by 9 April, when the US is expected to release a detailed list of tariffs.

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"Under the given tariff structure, we need to ensure that global companies don’t use India merely as a transit hub to ship goods to the US at lower duties than China, Bangladesh, Vietnam, and Thailand. Instead, they should invest in value addition by setting up production, creating jobs, and contributing to India’s economy," said the first person mentioned above.

When Trump imposed 25% tariffs on steel and 10% on aluminium from India during his first term, India had responded with higher duties on American almonds, apples, and motorcycles.

Treaty focus

“The government is actively negotiating a BTA with the US, and discussions are progressing positively. The first round of in-person meetings with US negotiators has just concluded, and the next round of talks is scheduled to take place virtually," said the second person.

Meanwhile, opposition leader Rahul Gandhi stepped into the debate, demanding clarity on the government's strategy to counter what he called a major economic threat. Gandhi said in the Lok Sabha that the Trump tariffs would "devastate" the Indian economy. He accused the government of lacking a clear strategy, arguing the levies would severely impact Indian exporters across various sectors.

Some experts said the tariff war is an opportunity for India, particularly in textiles, toys, electronics and pharmaceuticals, where its rivals will now face higher tariffs.

Need for reforms

“The imposition of higher reciprocal tariffs by the US on several Asian countries, including China, Vietnam, Taiwan, Thailand, and Bangladesh, presents an opportunity for India to strengthen its position in global trade and manufacturing. However, gains will not accrue automatically. India needs deep reforms for enabling scale production, domestic value addition and improving competitiveness to benefit,” said Ajay Srivastava, founder, Global Trade Research Initiative (GTRI).

Queries emailed to the ministries of commerce and external affairs and the PMO remained unanswered.

Though Trump had earlier repeatedly pointed to the high trade surpluses of countries such as China, Tuesday's tariff shocker spared Ireland, despite a trade deficit of $89.2 billion in 2024, as well as Russia, Guyana, and Romania, all of which had trade deficits exceeding $1 billion. Meanwhile, Some nations with US trade surpluses, including Australia ($13.7 billion) and the UAE ($12.6 billion), were still subjected to the 10% base tariff. Others in this category include Argentina, Peru, Morocco, Guatemala, Honduras, El Salvador, and the Dominican Republic.

Also read | Trump’s reciprocal tariffs: India braces for economic ripples

Several low-income nations faced unusually high tariffs despite having relatively small trade deficits. Botswana, with a trade deficit of $0.4 billion, was subjected to a 37% tariff. Myanmar, which had a $0.6 billion deficit, faced a 44% tariff, while Madagascar, with a $0.7 billion deficit, was hit with a 47% tariff.

While steel, aluminium, and auto-related goods will face a 25% duty, pharmaceuticals, semiconductors, copper, and energy products will remain exempt, as per the Factsheet released by White House on 2 April. Other Indian exports will be subject to an additional 10% tariff between 5 April and 8 April, increasing to a country-specific 27% from 9 April.

Target China

China remained Trump's primary target, with tariffs on its exports rising to 54% on certain goods, including a 34% reciprocal tariff and an additional 20% already in place. Vietnam faces a 46% tariff, Taiwan 32%, Japan 24%, and Korea 25%. The European Union will see a reciprocal tariff of 20% imposed on its exports.

For India, textiles and garment exports stand to benefit as China and Bangladesh face tariffs of 54% and 37%, respectively. Indian manufacturers could attract investments and expand their market share in the US as global supply chains look to relocate operations to tariff-favourable countries.

"Despite the steep tariff hike for India, it appears to be an advantage for our apparel sector, as major competing countries like China, Bangladesh, Vietnam, Cambodia, and Sri Lanka face even higher reciprocal tariffs from the U.S.," said Mithileshwar Thakur, secretary general of Apparel Export Promotion Council (AEPC).

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"The current Trump tariff gives a tariff-based edge to Brazil, Turkey, and EU apparel exporters like Italy, Germany, and Spain. However, given India's strong apparel sector, with a complete value chain and a diverse product range, I believe this will ultimately work in our favour. We should prepare to seize this opportunity,” said Thakur.

“The tariff impact on India's economy is mixed. Indian steel exporters may struggle in the US market, but lower global steel prices could benefit construction, infrastructure, and automobiles. However, cheaper steel imports may hurt domestic producers, risking job losses and reduced investment. The government might need protective measures while balancing steel consumers' interests,” said Harsh Bansal, managing director of BMW Industries, a steel processing company.

New avenues

The electronics and telecom sectors present another promising avenue. “With Vietnam (46%) and Thailand (36%) losing cost competitiveness due to steep US duties, India’s ongoing investments in electronics manufacturing, backed by the production-linked incentive (PLI) scheme, could position it as a major player in the global supply chain,” the GTRI founder said.

Sectors like machinery, automobiles, and toys, where China and Thailand currently lead, are also vulnerable to tariff-related relocation, as per experts. With strategic planning, India can attract foreign direct investment in these areas, scale up domestic production, and cater to markets like the US that are seeking alternate sources for imports, they said.

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India, whose largest trading partner is the US, exports a wide range of products, including metal ores, gemstones, electrical equipment, pharmaceuticals, and textiles. Sectors such as semiconductors, furniture, and rubber—while smaller in volume—are heavily reliant on US demand, with semiconductors being particularly exposed as 85% of India’s exports in this category are destined for the US.

India's key exports to the US include garments, engineering goods, electronics, pharmaceuticals, and gems and jewellery. These sectors together accounted for 72.7% of the total goods trade between the two countries in FY24, contributing $56.34 billion out of the overall bilateral trade of $77.52 billion.

To be sure, India has revised tariffs on several US products to address trade concerns. The import duty on bourbon whiskey has been reduced from 150% to 100%. Tariffs on Harley-Davidson motorcycles have been lowered from 50% to 30%, and the duty on ethernet switches has been cut from 20% to 10%.

And read | Trump's tariffs to shake up engineering and electronic goods exports