Reciprocal Duties May Not Impact Right Away, But Could Affect Sentiment

 

New Delhi: The Reciprocal Tariff Plan, announced on February 13 by the Trump administration, allows the US to raise tariffs on countries with a trade surplus. If implemented, it could significantly impact Indian exports. As per the data, US is India's largest export destination, with annual exports of USD 77.5 billion which is approximately 18% of India's total exports while the country's annual merchandise trade surplus with the US stands at USD 35 billion. 

 

 

Sectors with higher export exposure to the US include electronics, gems, jewellery, chemicals, and pharmaceuticals. Recent report on US tariff made by Care Rating says that the weighted average tariff on Indian exports to the US is approximately 3.5%, while the weighted average tariff on US exports to India is around 11.5%. Recently India has lowered customs duty on imported cars, motorbikes, beverages and electronics. It still remains uncertain whether the US will implement a uniform additional tariff of 8% across all goods or if the tariff will vary by product. The report indicates that the adverse impact of reciprocal tariffs could be partially mitigated by the depreciation of the rupee against the dollar, making Indian exports more competitive.

 

 

 It's calculation suggests that the direct export loss due to reciprocal tariffs could be USD 3.2 billion annually which is approx 0.1% of total country's GDP. The impact could be reduced as India works to reduce customs duties on key imports from the US and diversifies its export destinations. However, there will also be an indirect impact on India as the trade war lowers overall global trade and GDP and creates uncertainties in the external environment, adds the report. It also suggests that It is essential to consider that the threat of reciprocal tariffs may be a negotiation tactic designed to secure more favourable trade/security deals. Another report prepared by Global Trade Research Initiative (GTRI) says that if the U.S. imposes a uniform tariff, Indian exports could face an additional tariff of 4.9%, compared to the current 2.8%. 

 

 

According to this report Indian farm exports would be hit hardest, with shrimp, dairy, and processed foods facing tariffs of up to 38.2%. while on the industrial goods front Pharmaceuticals (10.9% tariff), diamonds & jewelry (13.3%), and electronics (7.2%) face major risks. Sectors with minimal impact Sectors would be petroleum, minerals and garments may be unaffected due to existing U.S. tariffs. GTRI Founder Ajay Srivastava suggests that India may propose a zero-for-zero strategy to the US, eliminating tariffs on 90% of industrial goods to prevent aggressive tariff hikes. If the U.S. rejects India’s offer, India should refuse unfair concessions and consider countermeasures, similar to China’s response to Trump’s tariffs, he added. According to Ajay Srivastava, India must negotiate strategically and prepare countermeasures to minimize the impact of these tariffs while ensuring that industries remain competitive in the U.S. market.