Reciprocal Tariffs and Retaliation: US, India and the World Brace for Economic Uncertainty

By: Muskan Agrawal

On April 2, 2025, President Donald Trump announced sweeping new tariffs on nearly all U.S. trading partners, marking a significant escalation in his administration's protectionist trade policies. Dubbed "Liberation Day" by the president, this move introduces a baseline 10% tariff on imports from most countries, with higher rates targeted at specific nations and industries.

During a press conference in the Rose Garden, President Trump justified the tariffs as essential for addressing longstanding trade imbalances and revitalizing domestic manufacturing. He described the global trade system as exploitative, accusing foreign nations of "pillaging" American taxpayers for decades. The new tariffs are intended to generate hundreds of billions of dollars in revenue for the US government while promoting domestic production across key industries such as steel, aluminum, and automotive manufacturing.

Among the most notable measures are a 34% tariff on Chinese goods, 20% on imports from the European Union, and a 25% tariff on imported automobiles. These actions are poised to reshape international trade dynamics and have profound implications for the US economy. India emerged as a focal point in these tariff measures, which impose a 26% “reciprocal tariff” on Indian goods entering the US. President Trump cited India’s historically high duties on American goods, labeling the country a “tariff king.” He pointed to disparities such as India’s 52% tariff on US goods compared to America’s previous average rate of 3.7% on Indian imports. While President Trump described Indian PM Narendra Modi as a “great friend,” he emphasized that these tariffs aim to create a more balanced trade relationship rather than targeting specific nations unfairly.

Impact of US Reciprocal Tariffs on India

The immediate impact of these tariffs is expected to be felt across several key sectors of Indian exports, including pharmaceuticals, processed foods, machinery, and textiles. For example, processed food exports—valued at $1.03 billion (88.12 billion INR) last year—face significant disruptions due to tariff disparities exceeding 24%. Sectors like electronics and agriculture are also vulnerable; shrimp and dairy products could see tariffs rise as high as 28%. However, some industries such as petroleum and garments may experience relatively limited effects.

Despite these challenges, India’s economy is considered somewhat insulated from severe repercussions due to its diversified export strategies and relatively low reliance on external demand. According to an SBI Research report, the overall impact of Trump’s tariffs on Indian exports would be modest, with projections suggesting a reduction of approximately 3% to 3.5%. This resilience stems from India’s emphasis on value addition and exploration of alternative markets through new trade routes connecting Europe to the US via the Middle East.

Nevertheless, concerns remain about long-term consequences for India’s trade relationship with the US, its largest trading partner. While ongoing negotiations between the two nations aim to double bilateral trade volume to $500 billion (42.8 trillion INR) by 2030, these new tariffs risk complicating progress toward finalizing agreements that address mutual grievances over market access and tariff barriers. Additionally, India’s reliance on imported energy and machinery raises fears that widespread trade conflicts could increase import costs, leading to inflationary pressures domestically.

President Trump’s Global Tariff Strategy

Internationally, Trump’s tariff strategy risks igniting retaliatory trade wars. Trading partners such as Canada, China, and the European Union already announced counter-tariffs targeting US exports. These retaliatory measures threaten to further destabilize global markets and erode alliances that have underpinned economic stability since World War II. The CEPII Working Paper estimates that a full-blown trade war could reduce world GDP by 0.5% and global trade volume by 3.4%. The ripple effects extend beyond economics into geopolitics; by imposing tariffs indiscriminately—even on allies—the Trump administration risks alienating key partners while undermining multilateral cooperation.

Domestically, reactions to President Trump’s tariffs have been mixed. While some view them as necessary steps toward leveling the playing field in international trade, others criticize them as regressive taxes that hurt American consumers more than foreign competitors. Business leaders have expressed alarm at the uncertainty created by these policies; over 30% of firms surveyed in early 2025 ranked trade issues as their top concern—a sharp increase from previous quarters.

For India specifically, experts remain optimistic about potential silver linings amidst these challenges. The Global Trade Research Initiative notes that additional duties imposed by the U.S. on other countries—such as Canada—could make their products less competitive globally, creating opportunities for Indian exporters in sectors like pharmaceuticals and auto components. However, these benefits depend heavily on India's production capacity and ability to scale operations quickly.

As these tariffs take effect over the coming weeks—beginning with automobile levies on April 3—the global economy faces an uncertain future. Whether Trump’s gamble will yield long-term benefits for American industry or plunge the world into deeper economic turmoil remains to be seen. For India, navigating this complex landscape will require balancing its domestic priorities with aspirations for deeper integration into global markets while mitigating inflationary risks and maintaining fiscal stability. What is clear is that this bold move marks a pivotal moment in U.S.-India trade relations—one with consequences that will reverberate far beyond their borders for years to come.