In his March 4 address to the US Congress, President Trump announced that he will impose reciprocal tariffs on India starting April 2. With US-India trade surpassing $125 billion in 2024, Indian businesses are concerned about potential losses. To navigate this challenge, India may adopt a three-step strategy: Understand, Prepare, and Respond. Let us discuss details of each step in turn.
Step 1: Understand
Trump’s approach is not based on genuine concerns about high foreign tariffs but rather a strategy to pressure countries into buying more from the US. Three issues of importance here:
Trump’s tariff argument lacks merit: Trump claims that high foreign tariffs prevent the US from selling its goods. However, if that were the case, the US would not have threatened the EU, as both have similar tariff levels. Instead, Trump uses tariff threats as a bargaining tool to force the EU into purchasing more US products. Similarly, despite having a zero-tariff trade agreement with Mexico and Canada under NAFTA and USMCA since 1994, Trump imposed tariffs on these countries by citing fentanyl concerns. This shows that he can use any justification to impose tariffs, regardless of economic realities.
Trump’s reciprocal tariffs violate multiple WTO principles: First, they would exceed the highest (Bound) Tariff Rates that the US has committed to on various products. Second, the Most-Favoured Nation (MFN) principle requires that the same tariff be applied to all countries (except the FTA partners) for the same product, but the US plan to impose different tariffs based on the country of origin directly breaches this rule. Finally, WTO rules prohibit unilateral trade actions, yet Trump is taking exactly this approach.
Trump’s earlier tariffs have backfired: After imposing high tariffs on China in 2018, while US imports from China fell by $82 billion between 2017 and 2023, the overall US imports increased by $763 billion. Meanwhile, China expanded its global exports by $1 trillion, proving that the Trump tariffs did not slow down its trade. Now, by expanding his tariff targets to even more countries, Trump risks damaging the US economy further instead of achieving any real trade benefits.
Step 2: Prepare
India must prepare for battle by taking a balanced approach that counters misinformation, avoids defensive reactions, and strengthens domestic industry while avoiding any long term harm. Focus on five issues to prepare well:
Combat misinformation: Trump, in his February 13 speech, claimed that the US trade deficit with India is $100 billion, but India’s data places it under $45 billion, while the US estimates put it at around $60 billion. Similarly, the White House fact-sheet falsely stated that India imposes a 100 per cent tariff on Harley-Davidson motorcycles, when the actual rate was 50 per cent before the Budget and reduced to 30 per cent on February 1, 2025. Such inaccuracies could lead to unfairly high reciprocal tariffs. India must correct these through diplomatic channels and media outreach.
No need to be defensive: India’s tariffs comply with WTO rules and are not as high at 50 or 100 per cent as Trump suggests. A tariff line level analysis of CY 2024 trade data shows that the US goods face a weighted average tariff of 7.7 per cent in India, while Indian exports to the US face only 2.8 per cent, creating a 4.9 per cent tariff gap. If the US applies a flat reciprocal tariff on India, it would be an additional 4.9 per cent across all products. However, if the US imposes tariffs sector by sector, the impact will vary. The Table shows sector-wise tariff gap or reciprocal tariffs.
Avoid negotiating a comprehensive FTA: The US demand in such an agreement would likely be more than just tariff reductions. It could include opening government procurement, reducing agricultural subsidies, weakening patent protections, and allowing unrestricted data flows. Trump’s decision to scrap the US-Mexico-Canada FTA (which he himself finalised in 2019) and impose 25 per cent tariffs on Canadian and Mexican imports shows his disregard for negotiated agreements. Given this, India should avoid committing to an FTA and instead focus on a zero-for-zero tariff deal.
Understand that retaliation is not the best strategy unless the US takes any unreasonable or extreme step. India can absorb the impact of true reciprocal tariffs (4.7 per cent at country level) without serious harm, much like how Lord Shiva consumed poison without swallowing it. Retaliation will start a cycle that could escalate and hurt India more. Instead of direct tariff level retaliation, India could quietly reduce its dependence on US oil, defence equipment, while strengthening domestic industries for the long term.
Finally, understand that reducing India’s MFN tariffs (low Indian tariff for all countries) is not a good option to solve Trump problem: While India needs to review and restructure its MFN tariffs, now is not the right time. Small cuts won’t satisfy Trump, and deep cuts could harm domestic industry and help China more than the US.
Step 3: Respond
Offer a zero-for-zero tariffs before Trump announces reciprocal tariffs on April 2: This would involve eliminating tariffs on 90 per cent of industrial goods exclusively for the US products, provided the US does the same for Indian goods. India can focus on tariff lines where it already allows duty-free imports under existing FTAs, minimising any additional burden on domestic industries. Agriculture should be excluded to safeguard farmers.
Presenting this deal in March — well before the April 2 deadline — would give the US administration time to evaluate the offer and possibly reconsider imposing reciprocal tariffs on India. If other countries raise objections, India can later notify the WTO that the agreement is a goods-only trade deal between two countries, aligning with WTO provisions. The Chinese embassy in Washington recently issued a response to Trump’s tariffs. “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end”. India need not do any of this but stay composed, minimise risks, and avoid long term harm.
The writer is the founder of Global Trade Research Initiative