Trump’s Tariff Tsunami & its impact on India

President Trump’s second-term trade policy follows a philosophical approach centered on reducing trade deficits, reviving domestic manufacturing, and leveraging America’s economic power. Unlike his first term, where tariffs were often used as negotiating leverage, Trump’s 2025 approach treats tariffs as a policy end in themselves, reflecting his longstanding belief that “tariff” is “the most wonderful word in the dictionary.”
The Trump administration has implemented or announced several types of tariffs since January 2025. These include protectionist tariffs designed to shield strategic industries from foreign competition, such as the 25 percent tariffs on steel and aluminum imports. The policy also encompasses reciprocal tariffs, which aim to match the tariff rates imposed by other countries on American goods, regardless of their economic status.
On January 20, 2025, his inauguration day, he signed an executive order directing cabinet officials to develop recommendations for tariffs by April 1. By February 1, he had signed executive orders imposing 25 percent tariffs on Canada and Mexico and 10 percent tariffs on China.
The tariff rollout continued with the February 13 announcement of a “reciprocal tariff policy” specifically targeting India, China, and the European Union. By March 4, the tariffs on Canada and Mexico took effect after a brief suspension, though with exemptions for auto imports and goods covered under the USMCA trade agreement until April 2.
Steel and aluminum tariffs were expanded significantly on March 12, with the aluminum tariff rate increasing from 10 percent to 25 percent and country exemptions eliminated.
The implementation of these tariffs has triggered significant economic repercussions worldwide. Economic experts estimate that the combined tariffs on China, Canada, and Mexico could reduce US GDP by approximately 0.4 percent, representing a loss of over $100 billion. This economic contraction is expected to eliminate around 309,000 full-time equivalent jobs in the United States.
The tariff policies have also spurred retaliatory measures from affected countries. China has imposed tariffs of up to 15 percent on key US farm exports, including American-grown chicken, pork, soy, and beef, while expanding export controls on US companies. Canada announced retaliatory tariffs on more than $100 billion of American goods, and Mexico plans similar countermeasures.
A critical consequence of the tariff war is the profound disruption to global supply chains. Major corporations with international manufacturing and distribution networks are scrambling to adapt to the new trade environment. These disruptions may accelerate the realignment of global supply chains that began during Trump’s first term and was further catalyzed by the COVID-19 pandemic. It seems Trump 2.0 will drive the global supply chain realignment that has been apparent since the first administration. This shift could benefit countries like India that are positioned to capture manufacturing capacity moving out of China.
Impact on India
India faces unique challenges and opportunities in navigating Trump’s tariff policies. With reciprocal tariffs set to take effect on April 2, 2025, Indian exporters are bracing for potential disruptions to their US market access. Trump has specifically criticized India’s high import duties, particularly in the automobile sector, where tariffs exceed 100 percent.
As per SBI Research reciprocal tariffs may only lead to a 3-3.5 percent decline in exports, with this effect potentially offset by higher exports to other markets. This relatively modest impact reflects India’s diversified export portfolio and ongoing efforts to enhance value addition and explore alternative trade routes.
India’s pharmaceutical industry merits particular attention, as it accounts for approximately 31 percent of India’s total exports to the US. If Trump’s reciprocal tariffs match India’s 10 percent tariff on pharmaceutical imports, it could eliminate Indian manufacturers’ current cost advantage in the American market.
India’s approach to the tariff challenge has been measured rather than pursuing retaliatory measures, India has focused on negotiation and selective concessions. During PM Narendra Modi’s visit to Washington, both countries agreed to negotiate the first tranche of a Bilateral Trade Agreement, covering market access improvements, tariff rationalization, and supply chain integration.
India has already made several pre-emptive concessions. The 2025-26 Union budget included cuts to tariffs on US-made bourbon, wines, and electric vehicles, including Harley-Davidson motorcycles—a frequent point of contention for Trump. India has also reduced peak tariffs from 150 percent to 70 percent as a signal of its willingness to engage in tariff reform.
The current tariff tensions occur against the backdrop of strengthening India-US strategic ties. Both countries have expressed their intention to double bilateral trade to $500 billion by 2030, an ambitious goal that will require overcoming the current tariff disputes.
Trump has signaled his expectation that India will make further tariff concessions before the April 2 deadline. In a March 20 interview, he stated: “I believe they’re going to probably be lowering those tariffs substantially, but on April 2, we will be charging them the same tariffs they charge us.” This statement suggests both pressure on India and a potential opening for negotiation.
Trump on April 2nd, 2025 has announced tariff on 180 countries including India. On India he has imposed 26% duty on imports originating from India.
The full implications of these Trump tariff policies will continue to unfold throughout 2025 and beyond. For the global economy, these policies may accelerate the transition toward regional supply chains and reduce trade efficiency.
For India, the tariff dispute represents both a challenge and an opportunity. While many export sectors face headwinds, India may benefit from supply chain diversification away from China. Negotiations toward a Bilateral Trade Agreement will be critical in determining the future of India-US trade relations. If successful, these talks could establish a framework for resolving tariff disputes and enhancing economic cooperation across multiple sectors.
As Modi government continues to pursue economic growth targets, its response to Trump’s tariff policies will be an important test of India’s trade diplomacy and economic resilience. The outcome of these negotiations will shape bilateral economic relations & it will also influence India’s position in the evolving global trade architecture.
