April 7, 2025
NEW DELHI – Indian textile businessman Anil Buchasia is looking at a hefty tariff bill running into millions of rupees on his shipments of clothes to the US. Yet he can take some comfort in the fact that things could have been far worse.
Imports from India to the US were hit with a 26 per cent tax as part of the worldwide reciprocal tariffs unleashed by US President Donald Trump on April 2.
However, this is still lower than that of India’s trading rivals like China and Vietnam, which were slapped with duties of 54 per cent and 46 per cent respectively. Even India’s smaller neighbours like textile powerhouse Bangladesh and Sri Lanka were harder hit, with 37 per cent and 44 per cent tariffs being imposed.
“In terms of competitiveness, India could be better placed than other countries like Bangladesh and Vietnam. To that extent, India is better insulated in the short term,” Mr Buchasia told The Straits Times.
That India attracted relatively lower tariffs was all the more surprising considering Mr Trump has frequently called it a “tariff king” and “offender” for placing hefty duties on US imports and traditionally taking a protectionist stance. Not to mention that the US had a trade deficit with India of US$45.7 billion (S$61.6 billion) in 2024.
On April 2, when the tariffs were unveiled, Mr Trump even said he told Prime Minister Narendra Modi: “You’re a friend of mine, but you’re not treating us right.”
In spite of India being repeatedly singled out, observers say it likely escaped a higher tariff because it read the room correctly and hustled early to assuage Mr Trump’s concerns.
In contrast to the confrontational posture adopted by other countries like China and Canada, Mr Modi’s government started rolling out trade concessions from February. This included slashing duty on US imports such as bourbon whiskey, which had levies reduced from 150 per cent to 100 per cent.
India also agreed to increase by two-thirds its US energy imports to US$25 billion and boost defence imports, and is assessing an offer of American F-35 fighter jets.
Mr Modi was also among the first leaders to visit the White House in February after Mr Trump was sworn in.
During that meeting with Mr Trump, the two countries agreed to negotiate the first tranche of a Bilateral Trade Agreement (BTA) by autumn 2025.
All these moves, combined with India’s continuing importance to the US as a bulwark against China, probably softened the blow, said Professor Harsh V. Pant, vice-president of studies and foreign policy at the Observer Research Foundation, New Delhi.
“I think the continuing salience of India in the larger strategic map of the Trump administration for the Indo-Pacific has a lot to do with it. Then there are more operational factors. Prime Minister Modi very early on went to Washington and was able to largely agree on a framework for the India-US relationship, which meant agreeing towards an early conclusion of the BTA,” said Prof Pant.
What next?
Despite the positive result, critics have accused the Modi government of being too suppliant in its dealings with the US. India has continued to lie low since April 2, amid pushback from other countries such as China, which rolled out a series of countermeasures, including 34 per cent across-the-board tariffs against the US.
Officials said India would be pushing concessions through the BTA, where they noted the basic premise is to increase and not reduce bilateral trade between the two countries.
At the same time, India has taken steps to open up to other Western markets through free trade agreement negotiations, where External Affairs Minister S. Jaishankar said the South Asian country would be taking an “India first” approach.
“Discussions are ongoing between Indian and US trade teams for the expeditious conclusion of a mutually beneficial, multi-sectoral BTA… We remain in touch with the Trump administration on these issues and expect to take them forward in the coming days,” said the Commerce Ministry in a response on April 3.
Many sectors, including electronics, are now banking on the BTA talks for tariff relief.
“The genuine long-term inflection point for India’s electronics trade with the US lies in the swift and successful conclusion of a comprehensive Bilateral Trade Agreement,” said Mr Pankaj Mohindroo, chairman of the India Cellular & Electronics Association.
And the assessment is that India may continue to fare better than other countries.
“We believe India will be able to safely navigate through the tariff challenges and is more likely to engage with the US through negotiations rather than heating up the trade war,” said international equity research company Bernstein in a report.
Challenges ahead
Even though India is not as export-reliant as many South-east Asian economies, with just a 1.8 per cent share in global exports, it is also not inured to the unfurling global trade war.
The South Asian country is still interconnected through global supply chains, which means that boosting domestic manufacturing, a key goal, may take a knock as tariffs would push up prices in spite of the availability of cheap labour.
Major players like Apple, which has been expanding manufacturing capacity in India as part of a China Plus One strategy, may have to reassess that strategy, said trade expert Biswajit Dhar, distinguished professor at the Council for Social Development, a research and policy studies institution.
Apple’s Taiwanese supplier Foxconn, which assembles its iPhones, is looking at doubling capacity over 2024 to roll out 25 millon to 30 million iPhones.
“What one has to see is whether we can actually insulate our industries from the hit. Anyway, the American market immediately is going to shrink and consumers will not buy at the same level. This will affect our producers in sectors like pharmaceuticals, textiles and clothing,” said Dr Dhar.
Despite India’s relatively lower tariffs, Mr Buchasia, like other entrepreneurs across Asia, is under no illusions that trade with the world’s biggest consumer market will be adversely disrupted.
In 2023-2024, India exported US$36 billion worth of textiles, of which US$10 billion was to the US.
“We will all be affected… It’s a tsunami that is happening,” he said. His firm in Kolkata exports school and work uniforms to the US and yarn to Vietnam, which exposes him to a downturn in demand from tariffs in both markets.
He has asked his American buyers, who currently account for 1 billion rupees (S$15.7 million) in orders, to figure out how to factor in the tariffs and who would pay for it. Textile exporters in India are already facing demands for price discounts, apart from orders being put on hold by their American buyers.
“Ultimately, the price increase will be on American consumers,” said Mr Buchasia.
For now, India’s pharmaceuticals have been exempted from the reciprocal tariffs. But exports like diamonds, smartphones and shrimp are all expected to take a big hit as they have the largest exposure to the US market.
Dr Dhar noted that China and Vietnam had also started deepening exposure to new markets, away from the US, in the past five years. “But can India do that? That is the question,” he said.
- Nirmala Ganapathy is India bureau chief at The Straits Times. She is based in New Delhi and writes about India’s foreign policy and politics.