I. INTRODUCTION
Tariff refers to a tax imposed by a country on its imports from other countries. Historically, tariffs were primarily a revenue-generating tool. However, in today’s globalized economy, they serve as instruments of negotiation and balance, aiming to ensure fair trade practices.
Reciprocal Tariff Policy is a trade mechanism where a country imposes tariffs in response to the tariffs imposed by its trading partners.
For example, if Country X imposes a 20% tariff on imports from Country Y, then Country Y may retaliate by imposing a 20% tariff on imports from Country X. This is done to protect domestic industries and pressure trading partners into renegotiating trade agreements.
II. KEY TARIFF MEASURES
On April 5, 2025, the US announced a 10% base tariff on all imports. Additionally, starting April 9, 2025, the US introduced reciprocal tariffs, where countries imposing higher tariffs on the US would face equivalent or higher retaliatory tariffs. For India, the tariff imposed is 26%, described by US authorities as a “remarkably discounted tariff, considering India’s existing tariff structure.”
Table 1 – Applicable Tariff Rates by Country
| Country | Tariff (%) |
| China | 34% |
| Taiwan | 32% |
| India | 26% |
| South Korea | 25% |
| Japan | 24% |
| Malaysia | 24% |
| European Union | 20% |
| United Kingdom | 10% |
| Vietnam | 46% |
| Bangladesh | 37% |
The primary concern driving these measures is the hollowing out of the US manufacturing base due to over-reliance on foreign imports. The lack of robust non-tariff trade policies has resulted in substantial trade deficits. These tariff barriers are introduced to reverse this trend.
III. NEED FOR SUCH MEASURES
- Reviving the US Market:
Many US sectors have seen stagnation. The influx of cheaper imported goods undermines local producers. The policy aims to rejuvenate domestic markets by making imports costlier and local products more competitive. - Countering China’s Dominance:
Often dubbed the “World’s Factory,” China has a dominant manufacturing presence in US markets. A 54% total tariff (20% base + 34% reciprocal) has been imposed on Chinese imports to reduce dependence and promote domestic alternatives.
However, experts caution that this move could provoke retaliation from China, possibly igniting a global trade war.
IV. EFFECT ON THE US ECONOMY
- Protecting Domestic Industries:
Tariffs aim to reduce US dependency on foreign imports and revive domestic manufacturing, potentially narrowing trade deficits. - Disruption of Supply Chains:
Reduced imports may disrupt established supply chains, affecting production timelines and market availability. - Market Volatility & Investor Sentiment:
Following the announcement, US stock markets opened lower. Investor confidence in private sectors waned due to fears of slowed growth and reduced global competitiveness. - Impact on Consumers:
Consumers are likely to face higher prices for imported goods, especially in sectors like automobiles, electronics, and agriculture. This could lead to inflation and an increased cost of living.
V. GLOBAL IMPACT OF THE NEW TARIFF RATES
1. China – 54% Tariff
- As the world’s leading exporter, China’s GDP and trade surplus are likely to take a hit.
- Higher tariffs make Chinese products less competitive, potentially leading to market substitution.
- Retaliatory action is expected, risking escalation into a trade war.
2. India – 26% Tariff
- While the policy presents challenges, it also creates opportunities. India can leverage its strength in textiles and garments, where it mainly competes with Malaysia.
- Stock Market Impact:
Major indexes dropped post-announcement, particularly in:- IT Sector: -4.21% (Nifty IT Index: 34,757.25)
- Auto Sector: -1.14% (Nifty Auto Index: 21,164.00)
- Healthcare Sector: +2.25% (Pharma Index: 21,423.55)
Notably, the pharma sector performed well, as it is largely exempt from the tariff impact.
- Given India’s stable trade relations with the US, it is expected to pursue negotiations over retaliation.
3. European Union
- The EU is likely to prioritize diplomatic engagement. However, if significantly impacted, it may reimpose tariffs on previously suspended goods as a countermeasure.
4. South Korea & Japan
- Sectors like semiconductors and pharmaceuticals where the US depends on these countries are exempted.
- Negotiations are expected in other sectors impacted by the policy.
VI. CONCLUSION
The reciprocal tariff policy marks a significant shift in the US’s approach to international trade. While the tariffs imposed by the US are generally lower than those previously imposed by other nations, indicating room for negotiation over retaliation, they still represent a firm step toward protecting domestic industries and reducing trade imbalances.
For India, although specific sectors face challenges, the overall economic relationship with the US remains stable, and opportunities for sectoral growth especially in textiles and pharma remain strong.
As global dynamics shift, countries must continue to adapt policies and strategize to safeguard their economic interests in an increasingly volatile trade environment.
AUTHOR – AASTHA ROHERA 3rd YEAR LL.B. STUDENT MADHAV VIDHI MAHAVIDHYALAYA , JIWAJI UNIVERSITY , GWALIOR .
Wish to read similar articles? Click the link to read more: https://jpassociates.co.in/the-waqf-amendment-act-2025/
Read the US reciprocal tariff policy: https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/
