How Trump "Liberation Day" Tariffs May Impact India And The Silver Lining

US President Donald Trump will unleash his sweeping global tariffs today amid fears that equity markets could go on a whirlwind and force countries to take emergency measures. It will most likely result in an all-out trade war. Gripped by a stark frenzy, the world could see an economic meltdown due to Trump's reciprocal tariffs, suggesting that this could essentially be the third world war that many anticipated would arise from the conflicts in the Middle East or Europe.

Trump has billed it as "Liberation Day" that will stop the US industries from being "ripped off" by the trading nations. He has appeared to expand his tariff plans to "all countries" but kept the world guessing about the details.

His repeated remarks on India being one of the "highest tariffing nations" suggest New Delhi must brace for heavy impact as the mega tariff plan rolls out this evening.

How India May Be Hit

New tariffs could significantly impact Indian exports, think tank Global Trade Research Initiative (GTRI) has warned. A uniform tariff could leave India facing an additional tax of 4.9% compared to the current 2.8%, impacting sectors like agriculture, electronics, and pharmaceuticals, according to the GTRI's "Reciprocal Tariffs and India" report.

"If the US imposes a single tariff on all products from India, it would be an additional 4.9%. Currently, US goods face a weighted average tariff of 7.7% in India, while Indian exports to the US face only 2.8%, leading to a 4.9% difference," the report explained.

However, if the US implements separate tariffs, the impact will be sector-wise.

Trump's tariffs would pose the biggest risk to the agriculture sector - tariffs on shrimp, dairy, and processed food could go up to 28.2%, and pharma and jewellery industries by over 10%. The electronics industry could face up to 7.2%, the report said.

Sectors like petroleum, minerals, and garments may be the least impacted.

The report also highlighted that India's tariffs remain consistent with the World Trade Organisation that allowed developing nations to retain higher tariffs in exchange for trade regulations that favoured wealthy countries.

While India's next move is not yet known, GTRI has listed steps that a country facing high tariffs could resort to - an advance tariff order that adopts a "zero-for-zero" strategy and subsides any hard impact, retaliatory measures like China's, address trade date mismatches, or correct exaggerated claims of inflated tariffs.

Donald Trump and Prime Minister Narendra Modi's excellent camaraderie - which often featured in the two leader's remarks about each other - is expected to play a big role in warding off any heavy damage - unlike in the Chinese case where mutual animosity has worsened any chance of resolution.

The Silver Lining?

Clouds come with a silver lining, and so do Trump's tariffs. Experts remain optimistic that additional duties on US imports from countries like Canada would make them less competitive, creating opportunities for Indian exports.

According to GTRI founder Ajay Srivastava, the US tariffs threatened to turn Canadian products more competitive allowing Indian companies to source such products from Canada at lower costs. This would have two benefits: strengthen trade ties and reduce dependence on other suppliers.

When Trump imposed additional tariffs on Canada, China and Mexico after his takeover, exporters had talked of similar opportunities for Indian sellers. Federation of Indian Export Organisations director general Ajay Sahai had listed sectors like electrical machinery, auto component, pharma, and chemical that were likely to gain from such import duties. But he said the extent of the benefit would depend on India's production capacity.