US President Donald Trump’s recent announcement of a 26 per cent reciprocal tariff on Indian imports has sparked concerns among policymakers and businesses alike. While the move presents immediate challenges, it may not be as damaging as it appears. In fact, there are potential silver linings for Indian exports, especially when compared to tariffs imposed on other Asian competitors.
A key factor in understanding this tariff war is recognizing that tariffs work on a comparative basis. While the US has imposed a 26 per cent duty on India, what matters more is how India’s competitors—China, Bangladesh, Vietnam, and others—are affected.
According to Trump’s trade policy, the US has introduced a universal baseline tariff of 10 per cent on all imports, with additional reciprocal tariffs based on trade imbalances. In India’s case, after the first 10 per cent base tariff takes effect on April 5, a further 16 per cent duty will be added from April 9, bringing the total to 26 per cent. However, this is still significantly lower than the tariffs imposed on some of India’s biggest competitors:
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China faces a 34 per cent tariff
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Vietnam has been hit with a 46 per cent tariff
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Bangladesh will pay 37 per cent
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Thailand faces a 36 per cent tariff
While India’s tariff is higher than the 24 per cent imposed on Japan, 25 per cent on South Korea, and 20 per cent on the European Union, the lower tariffs on these regions do not necessarily harm India, as they don’t directly compete in many of the same export categories.
For sectors like textiles and garments, India may now gain a comparative advantage over countries like Vietnam and Bangladesh, which are facing even steeper tariff hikes. This situation is reminiscent of how Bangladesh enjoyed an edge in the European Union market, where it received zero-duty access due to its status as a Least Developed Country (LDC) while India had to pay duties.
Another key takeaway is that Trump’s administration has left the door open for negotiations. The White House has indicated that countries willing to address US trade concerns could see their tariffs reduced or reversed.
India is already in talks with the US to finalize a bilateral trade agreement by October this year. These discussions could be crucial in securing exemptions or tariff reductions. Given that the US Trade Representative (USTR) recently reported that India had the highest average Most-Favored-Nation (MFN) applied tariff rate of 17 per cent globally—with an average of 13.5 per cent for non-agricultural goods and 39 per cent for agricultural goods—India was already on Washington’s radar for trade reforms.
Rather than reacting aggressively, India may take a diplomatic approach, working toward a solution that minimizes economic damage while ensuring continued access to the lucrative US market.
The real risk here lies in how other nations respond. Countries with traditionally lower tariffs—like the EU, Japan, Australia, and even China—might feel compelled to retaliate, setting off an escalatory trade war.
However, India may not need to take such an aggressive stance. Since New Delhi has been spared the worst of the tariff hikes, it can focus on leveraging its strong trade ties with the US to negotiate a better deal rather than engaging in retaliatory actions.
Tariff wars typically lead to increased costs for businesses and reduced consumer spending, which can slow economic growth. Given that the US remains India’s largest export market, an aggressive response could backfire.
A more strategic approach for India would be:
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Pursuing trade concessions by offering tariff reductions on US goods in return for favorable treatment.
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Strengthening its domestic manufacturing sector to become less reliant on exports.
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Diversifying its export destinations to lessen dependence on US demand.
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Negotiating with other trade partners (such as the EU and UK) to lower their barriers, making up for any shortfall in US exports.
While Trump’s 26 per cent reciprocal tariff on India presents a significant hurdle, it is not insurmountable. Compared to rival economies like China, Vietnam, and Bangladesh, India has been given a better deal. Additionally, the White House has hinted at the possibility of revising these tariffs, providing India with a window for diplomatic negotiations.
If India plays its cards right, it can turn this trade challenge into an economic opportunity—gaining a competitive edge over rivals, securing better trade deals, and boosting its long-term global trade standing.
