By Bibhuti Bhusan Dash* in Bhubaneswar, April 17, 2025: In a significant development with far-reaching implications, the global trade landscape experienced a major disruption following the United States’ announcement of sweeping import tariffs. Effective April 5, 2025, a blanket 10% import duty has been levied on all foreign goods entering the U.S. This will be followed by additional country-specific tariffs beginning April 9. Notably, India has been hit with a 26% country-specific tariff, raising the total effective tariff on Indian exports to a staggering 36%.

A tariff is a form of tax imposed on imported goods, typically intended to protect domestic industries by making foreign products less price-competitive. It also serves as a revenue-generating tool for governments. In contrast, reciprocal tariffs arise from mutual agreements—often within free trade agreements—where countries consent to lower or eliminate tariffs to promote cross-border trade and economic cooperation.

The Biden administration has cited “economic nationalism” and efforts to correct persistent trade imbalances as the key motivations behind the new tariff regime. While this approach may benefit certain domestic industries by shielding them from foreign competition, it also risks escalating trade tensions, raising consumer prices, and introducing volatility into global markets.

India ranks among the most adversely affected nations in this policy shift. Although the initial proposal included a 27% tariff, it was marginally reduced to 26% following diplomatic exchanges. Nonetheless, the Indian economy is preparing for substantial repercussions. As of April 7, 2025, the Nifty 50 declined by 4.03%, and the BSE Sensex dropped by 3.86%, reflecting widespread investor anxiety—especially in sectors heavily reliant on U.S. demand.

The sectors most vulnerable to U.S. tariffs include diamonds and jewelry approximately $10 billion, which are highly dependent on U.S. consumer markets; pharmaceuticals, with India exporting approximately $8 billion in generic drugs annually to the U.S.; automotive components approximately $6.79 billion, given the U.S. is a key market; and IT services, which may experience indirect impacts due to shifting trade sentiment and reduced outsourcing.

The Indian Rupee has come under pressure amid concerns of capital outflows and a shrinking trade surplus. Despite these headwinds, Indian officials continue to project GDP growth of 6.3%–6.8% for FY 2025–26, contingent on oil prices remaining below $70 per barrel.

New Delhi has adopted a cautious, diplomatic approach. While refraining from retaliatory tariffs, Indian authorities are intensifying efforts to finalize a bilateral trade agreement with the U.S. by autumn 2025. Such an agreement could potentially ease current tensions and pave the way for tariff relief. In parallel, the Indian government is evaluating support mechanisms—including subsidies and financial aid—to assist exporters in weathering short-term challenges.

The ramifications of the U.S. tariff strategy extend beyond India. Global financial markets, particularly in Asia, have registered notable declines as investor sentiment turns risk-averse. Emerging markets have been especially hard-hit amid rising fears of a new trade war reminiscent of the U.S.-China conflict in 2018.

In the short term, continued market volatility is expected as businesses and investors await clarity on trade negotiations and potential retaliatory measures. In the medium term, persistent tariffs could lead to earnings downgrades in India’s export-heavy industries, prompting investors to reallocate capital to more resilient sectors. India is likely to implement strategic measures aimed at maintaining global competitiveness, especially for affected industries.

While the imposition of tariffs is often positioned as a tool to protect domestic interests, it frequently triggers unintended consequences—market disruption, strained diplomatic ties, and elevated costs for businesses and consumers alike. For India, the path forward lies in a combination of strategic diplomacy, proactive policy support, and agile trade negotiations to safeguard its export-driven growth trajectory.

* Director, LotusMint Wealth Pvt. Ltd.