India may find itself in a more favourable position regarding the impending reciprocal tariffs announced by U.S. President Donald Trump, set to take effect on April 2, 2025. Recent statements from Treasury Secretary Scott Bessent suggest potential delays and opportunities for negotiation, which could allow India to avoid the full impact of these tariffs.

Current Situation

Uncertainty Surrounding Tariffs: The specifics of Trump's tariff policy remain unclear, with Bessent indicating that countries will receive a "reciprocal tariff number" reflecting their own rates and could negotiate to avoid a "tariff wall".

This implies that while tariffs are scheduled to be announced on April 2, their implementation might be postponed to facilitate negotiations.

India's Risk Exposure: Analysts from institutions like Morgan Stanley and Deutsche Bank have highlighted India's vulnerability due to its higher average tariffs on U.S. imports—over 10 percentage points greater than U.S. tariffs on Indian goods. This disparity raises concerns about retaliatory measures.

Potential Impacts

Limited Export Decline: A report from SBI Research suggests that the reciprocal tariffs may only lead to a 3-3.5% decline in Indian exports to the U.S., as India's diversified export base could mitigate the impact. The country is also exploring new trade routes and agreements which may further cushion any adverse effects.

Negotiation Opportunities: Bessent's comments imply that if India can negotiate its tariff levels down before April 2, it might avoid the imposition of higher tariffs altogether. However, a White House official has countered this optimism, stating that any negotiations would need to occur prior to the implementation date.

Strategic Considerations

Bilateral Trade Agreement (BTA): India is currently finalizing the scope of a Bilateral Trade Agreement with the U.S., which may include discussions on tariff reductions. This agreement could play a crucial role in shaping future trade relations and mitigating the impact of reciprocal tariffs.

Domestic Economic Implications: If India lowers its tariffs on U.S. goods as part of negotiations, it may face increased competition in sectors such as agriculture and electronics, potentially affecting domestic industries. Conversely, if reciprocal tariffs are imposed without negotiation, Indian exporters in sectors like pharmaceuticals and textiles could experience significant challenges.

Conclusion

The evolving nature of Trump's tariff policy presents both risks and opportunities for India. While there is uncertainty surrounding the implementation of reciprocal tariffs, proactive engagement and negotiation strategies may help India navigate this complex trade landscape effectively. The coming weeks will be critical as India seeks to finalize its trade agreements and respond to the changing dynamics of U.S.-India trade relations.

ET News