Tariff Trouble

US President Donald Trump has slapped steep ‘reciprocal tariffs’ on major trading partners, with India among the hardest hit. From April 9, Indian exports to America will face levies of 27 percent - a staggering jump from the current average of 2.7 percent. The move is part of a broader strategy to narrow America’s $1.2 trillion trade deficit by mirroring other countries’ tariff regimes, albeit at half their rate.

India has long attracted criticism in Washington for its tariff regime. Agricultural tariffs, among the highest globally, average over 100 percent and reach 300 percent in some cases. But the friction runs deeper than numbers. India frequently revises its tariffs through annual budgets and ad hoc notifications, with little consultation or transparency. Foreign investors face regulatory uncertainty, telecom equipment and solar technology face targeted duties, and key sectors such as retail, banking and insurance are marked by heavy state intervention and uneven rules.

The new tariffs mark a clear escalation in trade tensions. Indian steel, aluminium and auto components will be subject to 25 percent duties. Though pharmaceuticals and semiconductors are currently exempt due to their importance in American supply chains, the tariff wall has risen sharply across most categories. Washington has warned that further hikes could follow if countries retaliate, suggesting that escalation remains a live threat.

India’s response so far has been measured. New Delhi appears unlikely to impose retaliatory tariffs of its own. Instead, it is likely to pursue quiet negotiations, hoping to secure exemptions or delays. That may be wise. India’s export profile is less vulnerable to such shocks than those of more trade-dependent Asian peers. Moreover, its recent push for self-reliance through schemes such as ‘Make in India’ has somewhat reduced its dependence on overseas demand.

Yet the pain will be real. The United States remains India’s largest export destination, and any erosion of market share there will hurt. Sectors such as energy and automobiles are particularly exposed. Some gains may accrue in textiles, where traditional rivals like Vietnam and Bangladesh are also facing US tariffs. But any gains are likely to be modest and patchy. Much depends on how other countries respond and how global supply chains adapt. There is also a broader strategic cost. America’s tariff decision has turned a spotlight on India’s economic policymaking. Washington’s lengthy catalogue of grievances - from opaque digital policies and erratic FDI rules to agricultural subsidies and internet shutdowns - reads like a reform checklist. India must decide whether it wants to protect the inefficiencies of the status quo or seize the moment to modernise its regulatory apparatus and embrace more transparent governance.

Ultimately, India’s challenge is not just about tariffs but about leverage. Without structural reform, its hand in future negotiations will remain weak. As the global trading system fragments into transactional deals and strategic alliances, the cost of standing still will grow. If protectionism was once a shield, it is fast becoming a shackle.