America Announces Reciprocal Tariffs on India and Other Countries: What Does It Mean and How Can India Respond?

America has announced that it will impose reciprocal tariffs on several countries, including India. The term “reciprocal” means “as you do, so will we.” In other words, the second country will impose the same tax on us as we impose on it. The U.S. is adopting this policy to reduce its trade deficit. President Donald Trump has stated that this tariff will be enforced starting from April 2. If this happens, India will face losses. Many of India’s products will become significantly more expensive in the U.S., which could harm Indian exporters. Additionally, India may have to open up its agricultural sector, which could negatively impact Indian farmers. So, how can this be avoided? According to experts, the “Zero for Zero Tariff” approach could be the best way to address this proposed reciprocal tariff. Some even consider it a better option than a bilateral trade agreement. Let’s understand what this means.

What is Zero for Zero Tariff?

In response to America’s reciprocal tariffs, the “Zero for Zero” strategy could be highly beneficial for India. In this approach, India can identify specific tariff lines or product categories and remove import duties (tariffs) on those products. In return, the U.S. would also have to remove tariffs on an equal number of products. This way, the high tariffs that India imposes on American products, which Trump repeatedly mentions, will rapidly decrease or be eliminated. On the other hand, the impact of reciprocal tariffs on India will also be nearly nullified. Experts believe that the Zero for Zero Tariff policy is a better option than signing a bilateral trade agreement.

How is This Policy Better Than a Trade Deal?

Negotiating any bilateral trade agreement will take a considerable amount of time. Even if an agreement is reached, the proposed reciprocal tariffs imposed by the U.S. will still be in effect. According to the Global Trade Research Initiative, which proposes the Zero for Zero Tariff strategy, a bilateral trade agreement would force India to open up its protected agricultural sector, a challenge that India is not ready to face. Millions of poor people in India are dependent on agricultural work. On the other hand, the Zero for Zero deal can be quickly implemented and resolve all disputes. If the U.S. agrees, this deal could be signed before reciprocal tariffs are imposed.

Impact of Reciprocal Tariffs on India

Experts believe that if reciprocal tariffs are applied equally to all imports, Indian exports will face an additional tariff of 4.9% compared to the current 2.9%. If the U.S. applies this tariff sector-wise, sectors like agriculture, pharmaceuticals, diamonds, jewelry, and electronics will be significantly impacted. However, if reciprocal tariffs are applied to specific product lines, the impact will be limited, as India and the U.S. do not trade in the same products. Regardless of how reciprocal tariffs are imposed, India will be affected to some extent because India’s tariffs on imports are higher than those imposed by the U.S.

What About the Textile Industry?

Trump’s 20% tariff on imports from China has made Indian textile exports more competitive compared to China. In response, China has imposed a 15% tariff on U.S. cotton. This will increase the cost for Chinese textile industries. When a 25% tariff is imposed on Mexico, India will become the preferred destination for textile sourcing. This situation could be disrupted by reciprocal tariffs, which is why the textile industry is in favor of the Zero for Zero Tariff policy.