Reciprocal tariffs: How US plans could affect India’s trade and markets

Despite the Narendra Modi government’s self-congratulatory noises, India’s benchmark stock indexes kept falling on Friday, 14 February, as investor concerns grew over US president Donald Trump’s plans to impose reciprocal tariffs — a move analysts believe could disproportionately impact India compared to other Asian economies.

Trump has proposed slapping reciprocal tariffs on every country that taxes US imports. However, the implementation of these duties is expected to be delayed per his recent comments, which temporarily eased global market tensions.

Prime minister Narendra Modi met Trump on Thursday, offering to negotiate tariff reductions, increase India’s imports of US oil and gas and explore purchases of combat aircraft. Despite this diplomatic engagement, though, Indian markets reacted negatively. Indeed, the F-35 deal has been widely acknowledged a triumph. And yet... the Nifty 50 dropped 0.44 per cent to 22,929.25, while the BSE Sensex declined 0.26 per cent to 75,939.21.

“Indian markets have seen sharper losses on the day due to the high tariff differential with the US, compared to most other Asian economies," said Narendra Solanki, head of research at Anand Rathi, in a Reuters report.

Analysts warned that US tariffs could further weaken the Indian rupee and influence US interest rates, leading to greater foreign outflows and dampened domestic equities.

Over the past week, ahead of the much-anticipated Modi–Trump meeting in Washington, both the Nifty and Sensex have recorded losses of approximately 2.5 per cent — their worst performance in 2025 so far.

Already, there were worries from Trump’s reiteration of his resolve to up the tariffs on India mere hours before the leaders met. Then, at the joint press conference at the White House, he went on to say — while sharing the dais with Modi — that India’s “unfair, very strong tariffs” limit US access to the Indian market “very strongly”.

“And really it’s a big problem, I must say,” he continued. And if that didn't help Indian market confidence, the oddities that defy sensible negotiation didn’t help either.

For instance, the Global Trade Research Initiative (GTRI) has pointed out that while the US may consider imposing a 50 per cent tariff on Indian pistachios in response to India's own tariff on US pistachios, this would have no impact on India — as it does not export the nut.

GTRI founder Ajay Srivastava also notes that for 75 per cent of the US exports to India, the average tariff is below 5 per cent. In contrast, India faces significantly higher US tariffs on key labour-intensive exports — such as textiles, garments and footwear — with duties ranging between 15 per cent and 35 per cent on several products.

“Given the differences in the export profiles of the two countries, reciprocal tariffs may not have a significant impact,” Srivastava said. So what was the Trump administration actually hoping to achieve — or suggesting?

Following their meeting Washington, Trump also announced that India will increase its purchases of American oil, gas and military hardware to help reduce the trade deficit.

However, he made it clear that India would not be exempted from reciprocal tariffs just because these deals were on the table.

While the specifics of a potential trade deal remain unclear, it is expected that a limited agreement on tariffs may be unveiled in April.

Srivastava suggested that India may adopt a wait-and-watch approach until the US makes a final decision on the reciprocal tariffs in April. If necessary, India could then respond with countermeasures similar to those implemented in June 2019.

The markets have concrete reason for their nervousness too, however. The US has already imposed non-reciprocal tariffs of 25 per cent on steel and aluminium, raising concerns about broader trade restrictions.

Srivastava emphasised that this is not, therefore, an ideal time for a free trade agreement (FTA) between the two nations — especially as the US has demonstrated a lack of commitment to existing FTAs. He cited the Trump administration’s tariffs on Mexico and Canada, which violated provisions of the US–Mexico–Canada Agreement (USMCA), as an example of this disregard.

The GTRI also pointed out that the US has not yet clarified whether reciprocal tariffs will be applied to specific products or entire sectors.

A White House factsheet from 13 February first highlighted the ‘tariff disparities’ that the Trump administration is up in arms against.

It noted that while the US applies an average ‘most favoured nation’ (MFN) tariff of 5 per cent on agricultural goods, India’s average MFN tariff stands at 39 per cent. The document also criticised India’s 100 per cent tariff on US motorcycles, contrasting it with the 2.4 per cent tariff the US imposes on Indian motorcycles.

And indeed, in the 2025 Union Budget, finance minister Nirmala Sitharaman responded to Trump’s jibe about the time when Harley-Davidson couldn’t be sold in India with a slashing of customs duty across several slabs of bike imports.

Srivastava argues that the US must establish clear criteria for tariff applications — whether at the product or sector level — to ensure transparency. Without such clarity, efforts to cut MFN tariffs could inadvertently benefit China, which remains the world’s largest supplier of industrial goods.

Trade data reflects the deep economic ties between India and the US between April and November of the 2024–25 fiscal year, with bilateral trade in goods amounting to $82.52 billion, where India exported goods worth $52.89 billion and imported $29.63 billion, resulting in a trade surplus of $23.26 billion.

Between 2021 and 2024, the US was India’s largest trading partner, and in the 2023–24 fiscal year, bilateral trade in goods reached $119.71 billion — $77.51 billion in Indian exports and $42.19 billion in imports, yielding a $35.31 billion trade surplus.

Now, with the global economic landscape remains uncertain, India will certainly need to closely monitor US trade policy decisions in the months ahead, while preparing to respond strategically to the threatened tariff changes.