In brief
The United States (US) administration has announced1 imposition of reciprocal tariffs on imports from key trade partners of the US. Citing concerns surrounding economic security with reliance placed on differentiated tariff rates, non-tariff barriers of trade partners, etc. the executive order issued notes large and persistent annual US goods trade deficit, posing a threat to the US national security.
These reciprocal tariffs are effectuated as ‘additional ad valorem duty’ over and above the existing tariffs for imports into the US. Starting 5 April 2025, the additional ad valorem tariff of 10% is applied on all imports entering the US [excluding United States–Mexico–Canada Agreement (USMCA) covered goods].
Additional country specific tariffs have also been notified for imports from 57 countries, which will take effect from 9 April 2025. For these countries, the base rate will further increase from 10% to the country specific rates, some of which are cumulatively tabulated below.
Table 1 – Reciprocal Tariffs imposed by the US
| S. No. | Country | Country specific tariff notified for effectuation from 9 April 2025 |
| 1. | Bangladesh | 37% |
| 2. | China | 34% |
| 3. | European Union | 20% |
| 4. | India | 26% |
| 5. | Indonesia | 32% |
| 6. | Japan | 24% |
| 7. | Malaysia | 24% |
| 8. | South Korea | 26% |
| 9. | Thailand | 37% |
| 10. | Vietnam | 46% |
In detail
The key highlights of the US tariff measures are as follows:
- Base tariffs on all countries (10% tariff): A universal base tariff of 10% will apply to almost all imports from all countries, effective 5 April 20252.
- Higher tariffs on major trade partners: The US has imposed additional reciprocal tariffs on countries with which it has significant trade deficits, effective 9 April 20253. The base rate will thus increase from 10% to the country specific rates for these countries. These country-specific tariffs are notified for 57 countries.
These tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the US and the respective trading partner. Moreover, the tariff rates are over and above the prevailing import duty rates in the US. For the purposes of understanding the impact of these tariffs, two illustrative examples are as follows:
The reciprocal country specific tariffs become applicable on imports of some electronic goods into the US from 9 April 2025. For a few countries, the exports of electronic goods into the US would attract tariffs as shown below.
Table 2 – Exports of electronic goods into the US from various countries
| Country | Tariff rate on 2 April 2025 | Tariff rate on 5 April 2025 | Tariff rate on 9 April 2025 |
| China | 20% | 20% + 10% | 20% + 34% = 54% |
| India | 0% | 10% | 10% + 16% = 26% |
| Viet Nam | 0% | 10% | 10% + 36% = 46% |
| Thailand | 0% | 10% | 10% + 27% = 37% |
The cumulative valuation of tariffs as applicable on imports of diamonds into the US is as follows:
Table 3 – Exports of Diamonds into the US from various countries
| Country | Tariff rate on 2 April 2025 | Tariff rate on 5 April 2025 | Tariff rate on 9 April 2025 |
| Israel | 0% | 10% | 10% + 7% = 17% |
| India | 0% | 10% | 10% + 16% = 26% |
| Belgium | 0% | 10% | 10% + 10% = 20% |
| Switzerland | 0% | 10% | 10% + 22% = 32% |
Exemptions from reciprocal tariffs
It is also important to note that while ‘most’ products have been included within the scope of reciprocal tariff imposition, some products have been excluded from the ambit of its application as well. Some of these exclusions include -
- Goods covered in Annex II of the order including copper, pharmaceuticals, semi-conductors, lumber, critical minerals and energy products;
- Steel, aluminium, automobiles and auto parts already covered under section 232 tariffs;
- Imports from countries subject to Column 2 of Harmonized Tariff Schedule of the US (higher tariff rates applied to countries that do not have normal trade relations with the US, e.g. Russia, North Korea, etc.);
The executive order also notes that the ad valorem rates apply only to the non-US content of any subject article, provided it is at least 20% of the value of the subject article. This means, if the imported product contains more than 20% or more of ‘US Content’ (components produced or substantially transformed in the US), the tariff applies only to the non–US portion. This could imply variation of reciprocal rates as per the extent of US content, as indicated below
Table 4 – Variability of applicable reciprocal tariff rates depending on US Content
| S. No. | Extent of US Content in the product exported to the US from India | Reciprocal Tariff rate applicable |
| 1. | Less than 20% | 26% |
| 2. | 40% | 15.6% |
| 3. | 60% | 10.4% |
Impact
The table below shows that the impact of Reciprocal Tariffs depends on the product in question. In some cases, the tariff arbitrage could be favourable depending on the competing trade partners, and in some it might be relatively modest.
| S. No. | Description | India’s exports to US (2023, $Bn) | %age share | US Existing Tariff | Tariff effective from 9 April 2025 (India) | Tariff effective from 9 April 2025 (top competitor) | Remarks (IndiaCompetitive Advantage, Yes or No) |
| 1. | Precious or semi-precious stones | 9.93 | 13.10% | 0-13.5% | 26% | Switzerland 31% | Yes |
| 2. | Electrical machinery and equipment | 7.37 | 9.72% | 0% | 26% | China 54% | Yes |
| 3. | Pharmaceutical | 7.07 | 9.33% | 0% | Exempted | Status-quo | |
| 4. | Petroleum Products | 6.27 | 8.27% | 0% | Exempted | Status-quo | |
| 5. | Textiles/ Apparels | 3.72 | 4.91% | 0-12% | 26% | China 54% | Yes |
| 6. | Marine Products | 2.21 | 2.92% | 10% | 26% | Chile 10% | No |
| 7. | Machinery and mechanical appliances | 2.19 | 2.90% | 0-3.8% | 26% | China 54% | Yes |
| 8. | Vehicles and parts and accessories thereof | 1.52 | 2.01% | 0-27.5% | 25%1 | Status-quo | |
| 9. | Articles of iron or steel | 1.13 | 1.49% | 0% | 25%2 | Status-quo | |
| 10. | Chemical products | 0.69 | 0.91% | 0-6.5% | 26% | Germany 10% | No |
| Total | 75.8 | 100% | |||||
Note: 1 and 2. 25% tariff under separate order, has already come into force, but for auto component (additional tariff to be implemented no later than 3 May 2025).
What next?
As the Indian Government will be exploring various avenues for redressal vis-à-vis tariffs imposed by the US through the ongoing Bilateral Trade Agreement (BTA) negotiation, it becomes very crucial for the businesses to voice their opinion to the government about specific reliefs.
Moreover, it is also important to analyse the supply chain for the cost impact as well as the impact of competitive landscape. Overall, businesses may consider the following strategy as a way forward:
- Tariff Impact analysis: To assess cost implications and opportunities, and to adjust product focus, pricing, and sourcing strategies so as to manage tariff impacts effectively.
- Supply Chain Assessment: To review and optimise supply chains through the usage of available trade instruments (FTAs, etc.), and to develop alternative sourcing and manufacturing strategies to minimise tariff impacts.
- Compliance and Regulatory Assessment: Revisiting trade and regulatory compliances, including origin checks and customs requirements.
Businesses at large would also want to re-work their operations based on the IDEA Framework, which provides a structured approach to navigate trade uncertainties and leverage emerging opportunities. This can be accessed from here.
