How Donald Trump’s ‘reciprocal tariffs’ may play out for India

Increasing tariffs by the average difference in rates on all goods the US imports from India would be the easiest to implement if President Donald Trump follows through on his threat of ‘reciprocal tariffs,’ according to an analysis by Goldman Sachs.

Trump had last week signed an executive order on “reciprocal tariffs” just ahead of Prime Minister Narendra Modi’s visit to the White House, with India being among the nations named in a “fact sheet” in the ‘fair and reciprocal’ tariff plan.

The reciprocal tariffs could take effect against trading partners of the US, including India, by April.

Goldman Sachs said it sees three ways in which India could get affected under Trump’s “reciprocal tariff” plan.

If the US pursues country-level reciprocity, it would involve an increase in tariffs on all US imports from India by the weighted average tariff differential, estimated at about 6.5 percentage points.

“According to our US economics team, this approach would be the simplest to implement,” Goldman Sachs analysts Santanu Sengupta, Arjun Varma, and Andrew Tilton said in a note.

Product-level reciprocity, where the US matches India’s tariffs on each product imported from India may increase the average tariff differential by 11.5 percentage points, but would be more complicated with a longer implementation timeline, the note, titled India: Dealing with potential “reciprocal tariffs” from the US, said.

Reciprocity including non-tariff barriers such as administrative barriers, import licenses, and export subsidies, will be the most complicated, given the cost of estimating non-tariff barriers, but could presumably lead to higher tariffs, the analysts said in the note.

India’s bilateral goods trade surplus with the US has doubled in the past 10 years to $35 billion (or about 1% of India’s gross domestic product) in FY24, largely driven by electronics, pharmaceutical products, and textiles.

On average, India charges higher tariffs than the US by about 6.5 percentage points. The difference in tariffs is especially notable in sectors such as agriculture, textiles, and pharmaceuticals, where India’s tariffs are much higher compared to those of the US.

“India’s tariff rates are higher than the US on most products (6.5 percentage points on a trade-weighted average basis), with the differential being the highest in agricultural products, textiles, and pharmaceutical products,” the Goldman Sachs note said.

India’s total exports to the US make up about 2% of its GDP, which is relatively low compared to other emerging markets.

If the US increases tariffs on Indian goods as part of a broader tariff policy (like country-level or product-level reciprocity), it is estimated that India’s GDP growth could be affected slightly, between 0.1 to 0.3 percentage point, depending on how the US demand for Indian products reacts to the price changes, the note said.

If the US applies tariffs globally (not just targeting India but all countries), the impact on India could be larger. Since India also exports to other countries that in turn export to the US, the overall exposure of India’s economy to US demand would effectively double to about 4% of its GDP. In this scenario, the potential impact on India’s GDP growth could range from 0.1 to 0.6 percentage point, the note added.

While the US has not formally listed which critical goods may be subject to tariffs, Trump has mentioned semiconductors, other electronic components, pharmaceuticals, industrial metals, and oil/gas as potential targets.

Trump said Saturday the US will treat value added tax (VAT) systems the same as tariffs, for purposes of helping to calculate the reciprocal levies on other countries he ordered earlier this week.

At least 175 countries globally have a VAT, per the Organisation for Economic Co-operation and Development (OECD), meaning it could impact the math on any reciprocal tariff for most nations around the world.

The impact could be most immediate in the European Union, which has standardized value added taxes with an average rate of almost 22%.

In a long-winding post on X on Tuesday, Trump said “we will consider Countries that use the VAT System, which is far more punitive than a Tariff, to be similar to that of a Tariff.”

On Trade, I have decided, for purposes of Fairness, that I will charge a RECIPROCAL Tariff meaning, whatever Countries charge the United States of America, we will charge them – No more, no less!

For purposes of this United States Policy, we will consider Countries that use the…

— Donald J. Trump (@realDonaldTrump) February 17, 2025