US President Donald Trump’s reciprocal tariffs, targeting China (125%) and others (10%) is a potential turning point for India’s economy, similar to the 1991 economic reforms.

Trump Tariffs (TT)

• US President Donald Trump announced reciprocal tariffs (April 2, 2025), targeting China (125%) and others (10%).
• Aim: Counter China’s mercantilist policies (export-led growth, import restrictions, reserve accumulation).
• These tariffs aim to reduce the US trade deficit, which currently stands at $1.2 trillion.
• A base tariff of 10% applies to all countries, while country-specific tariffs are imposed from April 9.
• The US has announced the suspension of additional tariffs on India for 90 days until July 9, 2025.

Geopolitical Reactions to US Tariffs

• China’s resolute opposition: China will impose 125 per cent tariffs on US goods.
  • This comes after the US decided to pause tariffs for 90 days on many countries, but hit China with a 145 percent tariff amid the ongoing trade wars.
• Japan opts for negotiated settlement: Japan chose a diplomatic route, sending a team to negotiate with the US. 
  • Its goal was to protect economic interests through peaceful dialogue.
• EU considering both options: The EU adopted a balanced approach—open to negotiations while preparing retaliatory measures. 
  • It emphasized the importance of safeguarding its €1.5 trillion trans-Atlantic trade relationship.

India’s Stance on US Tariffs

• Strategic Restraint: India did not retaliate against US tariffs; instead, it opted for dialogue and negotiation.
• Bilateral Trade Agreement (BTA): Actively negotiating a BTA with the US to expand trade from $191 billion to $500 billion by 2030.
• Government Response: Commerce Minister urged exporters to stay calm and emphasized India’s image as a trusted and stable trade partner.
• Tariff Pause Advantage: US paused 26% reciprocal tariffs on India for 90 days (till July 9, 2025), recognizing India’s cooperative approach.
• Opportunity Focus: India views the situation as a chance to boost manufacturing, attract investment, and integrate into global supply chains.

Impact on Indian Economy

• Stock Market Volatility: Sensex plunged over 2,000 points on April 7, 2025, after tariff announcement.
  • Indian markets fell less than others but reflected global trade tension sensitivity​.
• Export Sector Disruption: India faces a 26% reciprocal tariff; sectors like auto (3% of exports) and IT are hit.
  • Nifty IT fell by over 3% due to fears of reduced discretionary spending in the US​.
  • Though temporarily exempted, India’s $12.2B pharma exports to the US are vulnerable to future tariff hikes​.
• Reduced Export Competitiveness: Higher tariffs increase product prices abroad, making Indian exports less competitive, especially in metals, electronics, and chemicals.
• Pressure on Monetary Policy: RBI cut repo rate by 25 bps to 6% on April 9, citing global uncertainty and impact on exports​.
• Risk of Inflation: Tariff-induced global inflation could spill into India via imported goods, affecting household budgets and input costs.
• Uncertainty in FDI & Investor Sentiment: Unstable global environment may deter new investments.
  • India already saw FDI dip to <1% of GDP by 2025​.

Opportunities for Indian Economy

• Second 1991 Moment – Trigger for Reforms: External pressure provides the political cover needed to push trade, FDI, and industrial reforms​.
• Boost to Manufacturing & PLI Schemes: US-China decoupling accelerates “China+1” strategy, India can attract global firms in electronics, pharma, and EVs.
  • Apple aims to shift 25% iPhone production to India by 2025.
  • PLI schemes target $520 bn manufacturing output by 2026.
• Repositioning as Global Supply Chain Hub: China’s 125% US tariff creates space for India in manufacturing.
  • India is seen as a “trusted and reliable partner” in global trade​.
• Boost to Bilateral Trade Talks with US: India–US BTA in progress, aiming to grow trade from $191B to $500B by 2030.
  • India’s non-retaliatory diplomacy helped pause the 26% tariff for 90 days​.
• Greater Leverage in FTA Negotiations: Simultaneous FTA discussions with EU, UK, and CPTPP being explored.
  • India is now negotiating from a position of strategic necessity and opportunity.

• Demographic & Workforce Edge: India’s prime-age (25-54), AI-ready workforce set to surpass China’s in coming years — making India more attractive to industries relocating from China​.
• Textiles & MSME Export Boost: Indian textiles ($9.6B to US) may gain edge over China (21%) and Vietnam (19%) under new tariff regime​.
• Rupee Trade Settlement Expansion: Rising dollar volatility and US-centric risk offers India a chance to expand rupee trade with Russia, Iran, UAE, Africa.
  • Reduces dollar dependency & improves sovereign economic autonomy.
• Tech, Innovation & Startup Ecosystem Gains: India can attract venture capitalists (VC) and tech giants diversifying away from China.
  • Startup India, DPI (Digital Public Infrastructure), Open Network for Digital Commerce (ONDC), UPI have already created global interest.
• Agricultural Market Access: Bilateral Trade Agreement (BTA) may open up US agri markets for Indian rice, spices, and organic produce.
  • Push for farm sector R&D and tech-backed productivity growth​.

Way Forward & Reforms Needed for India 

• Trade Policy Modernization: India’s trade-weighted import duties (12%) are among the highest globally (vs. 2.2% US, 3% China).
  • High tariffs make Indian goods less competitive, inflate costs for domestic industries, and hinder integration into global value chains.
  • Pursue “zero-for-zero” industrial goods agreements, starting with the India-US BTA as a template for upcoming EU/UK deals and eventual CPTPP accession.
• Reform and Liberalise FDI and BITs: FDI inflows have fallen below 1% of GDP, from 2–2.5% over two decades.
  • The 2015 “model” bilateral investment treaty (BIT) mandates Indian courts for dispute resolution — a major deterrent for foreign investors.
  • Revamp BITs to include neutral arbitration mechanisms and attract long-term capital investment​.
• Deepen Trade Integration via Strategic FTAs: India’s global export share remains low (1.8% in 2023), far below China (15.4%).
  • Expedite trade agreements with the US, UK, EU, and consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
• Reform Land, Labour, and Agriculture Laws: Outdated laws constrain ease of doing business and industrial competitiveness.
  • Rollback of 2020–21 farm laws under political pressure stalled essential agricultural reform.
  • Reintroduce these reforms with better consensus-building and implementation strategies​.
• Boost Export-Oriented Manufacturing: Job creation in India depends on scaling manufacturing exports, especially in labour-intensive sectors like textiles and toys.
  • Make in India struggled due to protectionism and neglect of such sectors.
  • India holds just 6% of the US textile market, vs. Vietnam (19%) and China (21%). TT could shift supply chains — India must seize this opportunity​.
• Invest in R&D and AI-Ready Workforce: India’s demographic dividend is peaking; its prime-age labour force will soon exceed China’s.
  • Invest in skilling, R&D, and digital infrastructure to ride the AI and innovation wave.
  • The West is increasingly looking at India as a counterweight to China; building a skilled, export-capable workforce is critical now​.
• Diversify International Trade Partnerships: Resume and conclude negotiations for the long-pending India-EU Free Trade Agreement by 2026 to access Europe’s $18 trillion market, particularly for pharmaceuticals, IT services, and automotive exports.
  • Proactively lead developing nations in WTO reforms while expanding rupee trade settlements to 50+ countries, building on the successful Russia-UAE payment mechanisms that bypass dollar dependence.

Conclusion

India must leverage US-China trade tensions to push long-pending reforms. Strategic alignment with the West can accelerate growth to 8%+. Second 1991 moment hinges on bold economic policy shifts.

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