Donald Trump’s reciprocal tariffs have riled the world. Global markets are reeling from the shock and even experts are unsure about how exactly it will play out. On April 2, 2025, the US President announced ‘discounted’ tariffs on major economies, calling them out for what he sees as ‘unfair’ trade practices that disadvantage the American economy.
What has followed is a global stock market rout, including in the US and India, as investors run for cover fearing a global economic slowdown and a possible US recession. Stagflation – a period of high inflation amidst stagnating economic growth or even contraction – is being predicted. Trump on his part seems firm on his decision, and has even said that the US economy needs this ‘medicine’ for long term gains.
India is adopting a cautious approach to the issue, and the government is actively working on the US-India trade deal which was announced during PM Narendra Modi’s US visit earlier this year. The 26% tariff on India is higher than what experts had anticipated, but the number is less compared to other countries.
April 9, 2025 is the date when the new reciprocal tariffs come into effect. Globally experts have questioned America’s methodology in coming up with the numbers for tariffs and even his supporters believe it’s bad math.
So how unfair are Trump’s tariffs and what should India do to counter their effect on the Indian economy? Experts weigh in:
How Unfair Are Donald Trump’s Tariffs?
As per the chart displayed by Donald Trump, India’s tariff and trade barriers amount to 52%, China’s is 67% and Europe Union’s is 39%. According to an AP report, these numbers on which Trump’s administration has calculated the reciprocal tariffs are much higher than the actual. According to the report, World Trade Organisations put India’s average tariffs at 12%, that of China at 3% and EU’s at 2.7%.
While the Trump administration has said that their methodology includes the impact of factors such as government subsidies, currency manipulation and other barriers.Even those don’t explain the high tariff numbers, the AP report says.
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What the White House says it has done is estimate the size of a country’s trade imbalance on goods with the US and divide it by how much the US imports from that country. The resulting number has been divided by half to arrive at the reciprocal tariff number.
The data below shows the weighted average tariff rate of countries that face the highest reciprocal tariff rates.
It’s evident that the weighted average tariffs applied by countries on their trading partners are far lower than the Trump administration’s calculations. The average tariff imposed by the likes of Myanmar, Vietnam and Laos is lower than the tariff imposed by the US.
Billionaire Bill Ackman, a Donald Trump supporter, has also questioned the methodology for tariff rate calculation. “The formula used by the administration to calculate tariffs made other nations’ tariffs appear four times larger than they actually are. President @realDonaldTrump is not an economist and therefore relies on his advisors to do these calculations so he can determine policy. The global economy is being taken down because of bad math. The President’s advisors need to acknowledge their error before April 9th and make a course correction before the President makes a big mistake based on bad math,” he shared on X (formerly Twitter).
What should India do?
The Trump administration has till now shown no inclination to blink on the implementation of the reciprocal tariffs. They have however, shown openness to negotiate with countries, and India is already working on a trade deal with the US.
So if no imminent relief on tariffs is on the horizon, what should the world do? What should India do to counter the impact of Trump’s reciprocal tariffs?
The US announced a 26% reciprocal tax on India, which is more than two and a half times of the existing average tariff gap, says DBS Bank.
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“The method behind the flurry of tariff measures announced by the US on April 2 is simple – the more a nation is reliant on US markets, the more tariffs they face. From there it should follow that the only way a country can see tariff relief in the future is by buying more from or selling less to the US. But since the reliability of the US to uphold any agreement is all but gone for now, such gestures may still fall short of providing meaningful relief. The playbook for most Asian economies ought to be to remain open to the US while pushing for greater integration with the rest of the world,” says Radhika Rao, Executive Director and Senior Economist at DBS Bank in a recent report.
DK Srivastava, Chief Policy Advisor, EY India says that India may find it easier to reduce its reciprocal tariff rate by increasing its imports from the US.
“Calculations indicate that if India increases its imports from the US by 15% as compared to the 2023-24 level of US$87.4 billion while holding Indian exports to the US at the same level of US$133.1 billion, the reciprocal tariff rate will go down to 16.2%, a fall of nearly 10% points from the presently applicable rate of 26%,” he tells TOI.
“This is what India should focus on. India’s competitor countries may not find it easy to increase their imports from the US or reduce their exports to the US. In fact, many of the countries that are announcing countermeasures by increasing their import duty rates will face higher tariff rates in the next round of calculations and will suffer a relatively higher disadvantage,” he advocates.
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“India should calibrate its policy, aimed at reducing the reciprocal tariff rate in each successive round of revision. Increasing India’s trade with the US through a comprehensive trade agreement will work to India’s advantage,” he adds.
Madan Sabnavis, Chief Economist at Bank of Baroda says that with the current mindset of making everything in America, Indian companies can leverage this opportunity by setting up facilities for production here and diversify their business.
India’s Comparative Advantage Explained
Interestingly, while India has been slapped with 26% tariffs, the number is comparatively less when it comes to other major world economies. This in turn can work in India’s favour.
“India’s overall comparative disadvantage is much less than that of its competitor countries since its overall dependence on exports is relatively less. The share of India’s total exports of goods and services in GDP is relatively low at about 22% and that of goods exports is only about 13% considering the average during 2021-22 to 2023-24. The adverse impact of these reciprocal tariffs on India’s GDP growth would thus be rather limited,” says EY’s DK Srivastava.
He notes the following:
- In the case of textiles, significant competition comes from countries like Vietnam, Bangladesh, Sri Lanka, and Cambodia which will suffer an even larger tariff disadvantage at 46%, 37%, 49% and 44% respectively.
- In the case of electronic goods, close competition will be faced from China, European Union, Japan and South Korea who will suffer comparatively larger or nearly similar tariff disadvantages with their respective tariff rates at 34%, 20%, 24% and 25%.
Radhika Rao of DBS Bank is of the view that India retains comparative advantage in specific sectors like electronics manufacturing for now as key competitor countries face higher tariffs.
Madan Sabnavis says that the 26% tariff on India is lower than that of other emerging markets that we compete with. “This could be an advantage to the extent that we can scale up and substitute exports from these countries. Besides, there are dialogues going on between India and the USA on a bilateral basis which should help to lessen the overall impact,” he tells TOI.
