US President Donald Trump imposed sweeping new ‘reciprocal tariffs’ ranging from 10 per cent to 49 per cent on imports from nearly 60 countries, The move risks igniting retaliatory measures worldwide, with early signs of deepening economic strain already visible in the tit-for-tat tariff war with China
Issuing an executive order citing “national emergency” on April 2, 2025, US President Donald Trump slapped additional customs duties branded as “reciprocal tariffs” (RTs) — in the range of 10 — 49 per cent — on nearly 60 countries including India, which faces a 26 per cent extra levy on most products across industrial and farm categories. While a 10 per cent baseline duty is applicable from April 5, 2025, the full additional impost takes effect from April 9, 2025.
The additional tariffs will apply over and above the current US levies, which average 3.3 per cent on a most favoured nation (MFN) basis. While the above levies are applied country-wise, certain product — level tariffs also take effect concurrently in all countries.
A 25 per cent duty on steel and aluminium products has already become operational from March 12, 2025, and a 25 per cent impost on automobiles and auto parts took effect from April 2, 2025. The US had earlier announced special extra tariffs for three of its largest trading partners — namely China, Mexico and Canada.
On imports from China, the US imposed a 54 per cent additional tariff (34 per cent RTs plus 20 per cent special extra tariff). China retaliated by imposing 34 per cent RTs on its imports from the US. The latter retorted with an additional impost of 50 per cent on imports from the former — taking the total to 104 per cent.
This bullied China to impose a further RT of 50 per cent on imports from the US, taking its total additional tariff to 84 per cent. Trump escalated the tariff war, levying a total of 125 per cent on Chinese imports (including a 20 per cent Fentanyl-linked tariff, which comes to 145 per cent). China has struck again — increasing its additional tariff to match the US at 125 per cent.
Even as EU countries, Japan and Australia had earlier hinted at retaliation, Trump’s announcement of a 90-day truce with countries other than China (however, a 10 per cent baseline duty will apply) has led them to defer their plans for now. Reciprocal tariffs are trade duties that one country imposes in response to tariffs placed on its goods by another country.
In simple terms, if Country A charges extra taxes on goods from Country B, then Country B does the same in return. It’s like a “tit-for-tat” in trade. This approach is seriously flawed. First, Country B need not be importing the same goods from Country A that the latter does from the former. Even when the product basket is the same, the foundational principle of comparative advantage suggests that Country B should import a product from Country A if the latter can deliver it at a lower price.
It makes no sense for Country B to artificially increase the price of the product (albeit cheaper) coming from Country A by imposing a higher import duty/tariff. There can be exceptions to this foundational principle for less developed or developing countries wherein the Governments are committed to protecting certain sectors. For instance, under the WTO rules, developing countries have the right to keep relatively higher “bound tariffs” (giving reasonable room for tariff hikes, if need be) for agricultural commodities.
The USA certainly doesn’t fall into this category. Trump’s argument that the imposition of “RTs” will help in re-invigorating domestic manufacturing by prompting companies to invest in the USA is far-fetched.
Firms are enthused to invest and expand capacities only when they are assured of demand. But a levy of RTs will kill demand by pushing up prices. And don’t forget the devastating effect on demand for US products in other countries when the latter go for “tit-for-tat”.
Forget any gains — it could take a serious toll on the US growth itself. According to former US Treasury Secretary Larry Summers, Trump’s RTs will wipe out nearly US $30 trillion — roughly equivalent to its one-year GDP.
The manner of arriving at the applicable additional tariff is mysterious. These tariffs seek to match the tariff and non-tariff burden that American businesses face while exporting to other countries. For instance, in the case of India, he looks at not just the existing tariffs but also loads on the tariff equivalents of non-tariff barriers and other trade-impacting measures like subsidies and currency adjustments. This way, it arrives at a high figure of 52 per cent. Having artificially inflated the number, Trump — in a gesture of benevolence — says ‘we are imposing on India an additional duty of 26 per cent only, which is half of what New Delhi charged the US’.
The reality is that even the ‘discounted’ tariff of 26 per cent is more than double India’s current trade-weighted tariff rate of 12 per cent on its imports from the US. Such a disingenuous and opaque method of arriving at RTs is evident in individual product categories. The resulting sharp increase in tariffs on major export items from India such as chemicals, metals, gems and jewellery, engineering, automobiles, food products etc. will have a devastating effect on these sectors. India may have some reason to feel relieved when it sees RTs on its exports to the USA in juxtaposition with tariffs imposed on its key Asian competitors — viz. China (125 per cent), Vietnam (46 per cent), Thailand (36 per cent), Bangladesh (37 per cent) etc. In textiles and garments, India will have a clear edge over China and Bangladesh.
In electronics and telecom, steep tariffs on exports from Vietnam and Thailand should give India a leg up. In January 2025, the US imposed restrictions on the export of computer chip — making equipment, software, and high-bandwidth memory chips to China. This has undermined the latter’s capabilities to boost the production of its goods such as electronics, automobiles etc.
China has also been impacted by EU countries imposing tariffs on their imports of Chinese EVs. These measures targeting China should help India find space for its electronics, EVs and automobiles in US/EU markets.
Trump has kept pharmaceutical formulations (besides energy and semiconductors) out of the purview of reciprocal levies. India caters to nearly half of the US market for branded generic medicines. The Americans get these medicines very cheaply when compared to the stuff made by US firms. It is, therefore, natural that the Administration has exempted their imports.
The US has offered some relief from its tariff assault to a country that takes significant steps to remedy non-reciprocal trade arrangements. For such countries, Trump says “I may decrease or limit in scope the duties imposed under this (reciprocal tariff) order.”
India has already taken some steps such as cutting taxes on bourbon whiskey, fish feed, motorcycles, mobile phone components and satellite parts. It could offer more under the Bilateral Trade Agreement (BTA) with the USA it intends to conclude by the end of 2025. But Trump won’t be satisfied with some more cuts here and there.
He has put forth big demands such as reforming India’s stockholding programme for food security, allowing the import of GM (genetically modified) food, lowering tariffs on farm products, amending its Patent Act to allow evergreening (a fancy term for extending patent protection for older drugs and delaying generic alternatives), removal of ban on inventory-based model in e-commerce, granting US firms access to Government contracts including defence.
It won’t be possible for India to yield ground in any of these areas. In February 2025, during a joint press conference at the White House, Trump had said Modi was “a much tougher negotiator” than him. Events seem to be proving otherwise.
(The writer is a political analyst and columnist. Views are personal)
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