US Tariff Hikes 'Unlikely' to Hurt India Much - Here's Why

Despite concerns over trade restrictions, the impact of United States tariff reciprocity on Indian exports is expected to be minimum, said a State Bank of India report, according to ANI. The report said that India's strategic export diversification, enhanced value addition and exploration of new trade avenues can offset the impact.

"Our estimates show overall incremental tariff levels even at 15-20% imposed by the USA would still limit the impact on exports to the US only in the range of 3-3.5% which again should be negated through higher export goals," the report stated.

The report further noted that the US tariff rate on Indian goods hiked from 2.72% in 2018 to 3.91% in 2021, before slipping slightly to 3.83% in 2022. Meanwhile, India's tariffs on US imports have surged significantly from 11.59% in 2018 to 15.30% in 2022.

This shift in tariff structures reflects India's more assertive trade policy, which aims to balance trade relations while also protecting domestic industries.

India has been focusing on adding value to its exports, shifting from raw materials to finished goods and high-value products.

US-India Trade Ties

The US is the top export destination of India, contributing 17.7% of total exports in the financial year 2023-24.

However, the report suggested that India is also actively working on alternative trade routes that connect Europe, the Middle East and the US, reducing logistical costs and improving efficiency. This restructured supply chain approach is expected to strengthen India's position in international trade despite global uncertainties.

This strategy not only enhances export earnings but also reduces the potential impact of tariff hikes by ensuring that Indian goods remain competitive in global markets.

Trump's Trade War

On February 13, US President Donald Trump signed an order on directing his administration to propose “reciprocal tariffs” on US trade partners. The tariffs aim to match or offset tariffs and other trade barriers imposed on US goods by foreign nations and are expected to be effective by April this year.

This policy shift is also expected to have a widespread impact on global trade, particularly on emerging economies like India, with extremely high tariffs.