Trump tariffs: India remains on wait-and-watch mode ahead of PM Modi meet with US President

A global trade and tariff war seems to be in the offing but for now, India is keeping its cards close to its chest. Officials have pointed out that India has already cut import duties on several items as part of the rationalisation in the Union Budget 2025-26 and is awaiting to see the impact of this. According to sources, India may be willing to cut tariffs on more imports from the US, but for now, hopes are pinned on Prime Minister Narendra Modi's meeting with US President Donald Trump during his two-day visit to Washington from February 12, 2025.

Trump has announced that the US will hike the import duty on aluminum and steel to 25% from 10% with effect from March 4, which could have a direct impact on countries like India.

This is a repeat of the tariffs he imposed in March 2018 during his first term as US President. The removed tariffs on steel and aluminium imports from India on July 3, 2023 as part of a broader trade resolution announced during Prime Minister Narendra Modi’s visit to Washington.

A report by Global Trade Research Initiative pointed out that the return of tariffs on steel and aluminum could be used as leverage in trade negotiations. “The 2018 tariffs were widely seen as an aggressive strategy to force trading partners into concessions. The latest move, if implemented, could lead to new trade disputes and retaliatory measures from affected countries,” said the report.

However, a Nomura report noted that emerging Asian economies including India, Thailand and China have higher relative tariff rates on US exports and are thus at risk of higher reciprocal tariffs.  As per the report, India has a 9.5% weighted average effective tariff on US exports to India versus a 3% tariff rate on India’s exports to the US.

“We expect Asian economies to step up their negotiations with Trump. India is considering reducing tariffs on over 30 items including luxury vehicles, solar cells and chemicals and preparing to increase purchases of US defense and energy,” said the report.

The US accounts for nearly 18% of India’s total exports ( or about 2.2% of GDP, as of FY24) and is India’s largest export destination, with the India-US trade surplus rising in recent years to a high of about $ 38 billion in 2024. Key exports include electrical/industrial machinery, gems and jewellery, pharmaceuticals, fuels, iron & steel, textiles, vehicles, apparel, and chemicals, among others, of which iron & steel and aluminium account for nearly 5.5% of the total, said the report.

However, in a post-budget interview with BT, Finance and Revenue Secretary Tuhin Kanta Pandey noted that India’s tariffs on US imports have not been very high. “On the 13 large products from the US, you would see the important products imported from the US on industrial goods, our tariffs are within 10%,” he said, adding that with the Budget exercise, it has been brought down further.

India’s effective tariff rate is now down to 10.6%, which is close to the ASEAN level, he noted. It was initially 13%, and then brought down to 11.6% in the last Budget.

The Union Budget 2025-26 has removed seven tariff rates for customs duties, leaving only eight rates now, including the zero rate, and has rationalised rates on several items.