Donald Trump announces 26% 'discounted' reciprocal tariff on India: What will be the impact and is Indian economy relatively insulated?

US President Donald Trump has unveiled extensive reciprocal tariff proposals, declaring "our country has been looted, pillaged, raped, plundered" by foreign nations. During his speech on ‘Liberation Day’, Trump displayed a chart illustrating proposed reciprocal tariffs: 34 per cent on Chinese goods, 26 per cent on Indian goods, 20 per cent on European Union imports, 25% on South Korean products, 24 per cent on Japanese items and 32 per cent on Taiwanese merchandise.

"My fellow Americans, this is Liberation Day, waiting for a long time. April 2nd, 2025, will forever be remembered as the day American industry was reborn, the day America's destiny was reclaimed, and the day that we began to Make America Wealthy Again...Taxpayers have been ripped off for more than 50 years," Trump declared during his White House address. "But it is not going to happen anymore."

As per the board held up by Trump, the tariffs charged by India to the US are 52% and the ‘discounted’ reciprocal tariffs by US will be 26%.

Also Check | Donald Trump tariff announcements live
What Donald Trump announced:
According to Trump, the US imposes a modest 2.4 per cent tariff on imported motorcycles, whilst other nations implement substantially higher rates. “The United States charges other countries only a 2.4 per cent tariff on motorcycles. Meanwhile, Thailand and others are charging much higher rates, like 60 per cent. India charges 70 per cent, Vietnam charges 75 per cent, and others charge even higher rates,” he said.
"Likewise, until today, the United States has, for decades, charged a 2.5 per cent tariff. Think of that 2.5 per cent on foreign-made automobiles. The European Union charges us more than 10 per cent tariffs, and they have a 20 per cent VAT much, much higher. India charges 70 per cent and perhaps worst of all are the non-monetary restrictions imposed by South Korea, Japan, and many other nations as a result of these colossal trade barriers."
"India, very, very tough. Very, very tough. The Prime Minister just left. He's a great friend of mine, but I said, 'You're a friend of mine, but you're not treating us right. They charge us 52%. You have to understand, we charge them almost nothing for years and years and decades, and it was only seven years ago, when I came in, that we started with China," Trump added.
Also read: India’s first reaction on Donald Trump’s 26% reciprocal tariffs: ‘It's mixed bag, not setback…’
Trump's reciprocal tariffs
This is the full list of reciprocal tariffs that Trump announced:
1. China: 34%
2. European Union: 20%
3. South Korea: 25%
4. India: 26%
5. Vietnam: 46%
6. Taiwan: 32%
7. Japan: 24%
8. Thailand: 36%
9. Switzerland: 31%
10. Indonesia: 32%
11. Malaysia: 24%
12. Cambodia: 49%
13. United Kingdom: 10%
14. South Africa: 30%
15. Brazil: 10%
16. Bangladesh: 37%
17. Singapore: 10%
18. Israel: 17%
19. Philippines: 17%
20. Chile: 10%
21. Australia: 10%
22. Pakistan: 29%
23. Turkey: 10%
24. Sri Lanka: 44%
25. Colombia: 10%

The risks for India
It's important to note that the exact impact of Trump's reciprocal tariffs on various sectors in India will be easier to analyse as more details emerge.



…but is India relatively insulated?
A recent SBI Research report said that the impact of Trump’s tariffs is likely to be limited. This sentiment is echoed by several global research and ratings firms and banks such as Goldman Sachs, Nomura, Morgan Stanley and Fitch.
According to the SBI analysis, the potential impact of US tariff reciprocity on Indian exports would be modest. It projected a reduction of approximately 3 to 3.5 per cent, with an assumption of tariffs ranging between 15 and 20 per cent.

The report indicates that India's strategic approach to export diversification, emphasis on value addition, exploration of alternative markets, and development of new trade routes from Europe to USA through the Middle-East would offset the effects of US tariffs.
Goldman Sachs notes that India’s gross exports to the US is one of the lowest among its Emerging Market peers. Fitch says India’s low reliance on external demand makes it ‘somewhat insulated’.

Based on Nomura's recent findings, India stands as one of Asia's most resilient economies in the ongoing trade conflict.

The country's exposure remains limited, with exports to the US constituting only 2.2% of its GDP, whilst Vietnam shows significantly higher exposure at 25.1%.
Nomura's study on Asian contribution to US-bound global exports identifies Vietnam as having the highest risk exposure (8.9% of GDP), with other nations following: Taiwan (6.3%), Thailand (5.6%), Malaysia (4.6%), Singapore (4.5%) and South Korea (4.5%). The electronics and computing sector faces substantial risks from tariff-induced supply chain disruptions.

Across industries, Asian economies show highest susceptibility to automotive tariffs, followed by semiconductors and steel sectors as the next most exposed areas.
Morgan Stanley says, “While India is exposed to direct tariff risks, we have consistently highlighted that the bigger effect on growth from tariffs likely comes via the indirect transmission channel of weaker corporate confidence from heightened policy uncertainty and the spillovers to capex and trade cycle. From this perspective, India's low goods trade orientation and ability to generate domestic demand offset mean it is among the least exposed economies within the region from an indirect effect standpoint.”
Despite the looming impact from Trump’s tariff moves, global economists believe India will continue to be the fastest growing economy in the world. According to the IMF's January World Economic Outlook, India will become the world’s third largest economy in the coming years.

Advantage India?
A Financial Times report citing Aston University's econometric research says that severe global retaliation against Trump's proposed 25% tariffs could result in a $1.4 trillion reduction in global income and significantly impact international trade.
Initial analysis suggests India could potentially benefit alongside the UK, Japan, and South Korea. These nations might experience increased export opportunities in areas where US buyers seek alternatives to suppliers affected by tariff barriers. The trade diversion could particularly favour India.
India's prospects appear promising in electronics, pharmaceuticals, and textiles sectors, which align with the "Make in India" programme. The country's emerging status as a manufacturing alternative to China, combined with its independence from major trade groups like the EU, could make it an attractive supplier during uncertain times.
However, these advantages are limited and temporary. As noted by a senior economist at a New Delhi-based think tank: "India might benefit from a few supply chain shifts, but if the global trade environment turns volatile, capital flows will become unstable, inflation will rise, and the ripple effects will catch up."
Additionally, India's reliance on imported energy, machinery, and sophisticated components poses risks. A widespread trade conflict would increase import costs, potentially leading to higher inflation and reduced government fiscal flexibility. The Reserve Bank of India, already concerned about food prices, might need to implement stricter monetary policies, potentially affecting economic growth.
Ultimately, whilst India might experience initial advantages, it remains vulnerable to the broader negative consequences of global trade disruption.
How is India preparing for US tariffs?