Trump’s Tariff Plan Targets India, China

Satyabrat Borah

(The writer can be reached at  satyabratborah12@gmail.com)

In a bold and polarising move, U.S. President Donald J. Trump has introduced a sweeping new tariff system targeting imports from numerous countries, including major economies like India and China. Announced in April 2025, this policy, dubbed the “Fair and Reciprocal Plan”, imposes a baseline 10% tariff on nearly all foreign imports, with higher “reciprocal” tariffs applied to specific nations based on their trade practices and deficits with the United States. The tariffs, which have sparked global economic turbulence and fears of a trade war, aim to address what Trump describes as decades of unfair trade practices that have disadvantaged American workers and industries. This article explores the details of Trump’s tariff system, its implications for countries like India and China, and the broader economic and geopolitical consequences of this aggressive trade policy.

The new tariff system is rooted in Trump’s long-standing belief that tariffs are a powerful tool to protect American manufacturing, reduce trade deficits, and restore economic sovereignty. During his 2024 presidential campaign, Trump pledged to impose tariffs far exceeding those of his first term, including 60% on China, 100% on Mexico, and 20% on all other countries. The current policy, while slightly moderated, reflects this vision. Effective April 5, 2025, a 10% baseline tariff was applied to most foreign goods entering the U.S., with exemptions for specific items like copper, pharmaceuticals, semiconductors, and energy products. On April 9, additional “reciprocal” tariffs ranging from 11% to 50% were briefly imposed on 86 countries, though these were paused for 90 days for all but China due to market volatility. China faces a staggering 104% tariff, combining a 20% existing levy with an additional 84% reciprocal rate, later adjusted to 125% by Trump. India, a key U.S. trading partner, is subject to a 26% reciprocal tariff, significantly lower than China’s but still substantial. These tariffs are calculated based on a formula that divides the U.S. trade deficit in goods with a country by the value of U.S. imports from that country, halved to determine the “reciprocal” rate. For India, this translates to a trade barrier value of approximately 52%, halved to 26%.

The rationale behind Trump’s tariffs is multifaceted. The administration argues that large and persistent U.S. trade deficits—$1.2 trillion in goods in 2024—have hollowed out American manufacturing, undermined supply chains, and made the U.S. defence-industrial base dependent on foreign adversaries. The White House cites disparities in tariff rates, noting that the U.S. has one of the lowest average most-favoured-nation (MFN) tariff rates at 3.3%, compared to India’s 17%, China’s 7.5%, and Brazil’s 11.2%. Non-tariff barriers, such as India’s stringent certification requirements for chemicals and medical devices or China’s non-market policies, are also blamed for restricting U.S. exports. Trump’s team, led by Senior Counsellor for Trade and Manufacturing Peter Navarro, views these tariffs as a response to a “national emergency” caused by trade imbalances, currency manipulation, and policies that suppress foreign wages to boost export competitiveness. By invoking the International Emergency Economic Powers Act (IEEPA), Trump has bypassed Congressional approval, framing the tariffs as essential for national security and economic stability.

For India, the 26% tariff poses both challenges and opportunities. India’s economy, heavily reliant on domestic demand, is less vulnerable to export disruptions than export-driven nations like China or Vietnam. The U.S. accounts for only 18% of India’s merchandise exports, with sectors like IT services and pharmaceuticals less affected due to their service-orientated nature or tariff exemptions. Economists estimate that the tariffs could shave 0.5 percentage points off India’s economic growth, translating to a modest $28 annual impact per household. However, India’s textile, electronics, and engineering goods sectors, which face the 26% duty, could see reduced competitiveness in the U.S. market. Conversely, the significantly higher tariffs on China (104%) and Bangladesh (37%) create opportunities for Indian textile manufacturers to capture U.S. market share. India’s strategic alignment with the U.S., coupled with ongoing trade negotiations, further cushions the blow. Since February 2025, India has made concessions, including scrapping a 6% digital ad tax, reducing tariffs on U.S. bourbon and luxury cars, and pledging $25 billion in U.S. energy imports. These efforts aim to secure a favourable trade deal and potentially lower the 26% tariff.

China, however, faces a far more severe impact. The 104% tariff (later raised to 125%) on Chinese goods is among the highest in modern trade history, targeting a country that accounted for $440 billion in U.S. imports in 2024. China’s Ministry of Commerce has condemned the tariffs as “unilateral bullying”, warning of damage to global supply chains and U.S. interests. Beijing has retaliated with a 34% tariff on U.S. products, later escalated to 84%, and imposed restrictions on rare earth exports critical for electronics and electric vehicles. The U.S.-China trade war already intensified during Trump’s first term and risks further escalation, with analysts from Capital Economics deeming a near-term resolution unlikely. Chinese state media argue that past U.S. tariffs failed to reduce bilateral trade volumes or China’s trade surplus, suggesting resilience to the new measures. However, the tariffs could disrupt China’s manufacturing dominance, prompting companies like Apple to shift production to India and Vietnam, where tariffs are lower.

Trump’s tariffs have triggered alarm and volatility globally. The European Union, facing a 20% tariff, is preparing retaliatory duties on €100 billion of U.S. imports, including aircraft, cars, and medical devices. Canada and Mexico, though exempted from the latest reciprocal tariffs, still face 25% levies on steel, aluminium, and automobiles, prompting countermeasures. Stock markets plummeted following the April 2 announcement, with the Dow Jones Industrial Average losing nearly 4% before recovering slightly after the 90-day pause. A Reuters/Ipsos poll in April 2025 found that 73% of Americans expect price surges due to the tariffs, with 57% opposing the policy. Economists, including 23 Nobel Prize winners, warn that the tariffs will raise consumer prices, widen deficits, and exacerbate inequality. The Tax Foundation estimates an average tax increase of $1,200 per U.S. household in 2025, with long-term GDP reductions of 1.3% if retaliatory tariffs persist.

Critics argue that Trump’s tariff calculations are flawed. The “reciprocal” formula, which bases tariffs on trade deficits, oversimplifies complex trade dynamics and ignores services, where the U.S. often holds a surplus. For instance, India’s service exports, particularly in IT, are significant but excluded from the formula. Economists like Mark Zandi of Moody’s Analytics predict that sustained tariffs and retaliatory measures could plunge the U.S. and global economies into recession. The inclusion of small territories like Norfolk Island (29% tariff) and the British Indian Ocean Territory (10%) in the tariff list has also raised questions about the policy’s coherence. Furthermore, the use of IEEPA to justify tariffs is unprecedented and legally contentious, potentially inviting challenges in U.S. courts or the World Trade Organisation (WTO).

Trump remains steadfast, framing tariffs as a path to American wealth and industrial revival. In a Truth Social post, he urged retailers like Walmart to “eat the tariffs” rather than raise prices, asserting that the policy would generate unprecedented revenue. The administration sees tariffs as a negotiation tool, a punitive measure against unfair practices, and a macroeconomic strategy to reshore manufacturing. The 90-day pause for most countries reflects a willingness to negotiate, with over 75 nations, including India, engaging in talks to avoid higher duties. The U.K. and U.S. have reached a deal exempting certain goods, such as U.K. cars and steel, from higher tariffs, suggesting that strategic concessions can yield results.

For India, the tariff regime underscores the need for deft diplomacy. Prime Minister Narendra Modi’s planned visit to Washington in 2025 aims to strengthen bilateral ties and address trade tensions. India’s relatively low export dependence and diversified markets provide leverage, but negotiators must balance domestic interests with U.S. demands for relaxed import rules on dairy, pork, and intellectual property. China, facing steeper tariffs, is less likely to secure concessions without significant reforms, which Beijing has resisted. The broader risk is a fragmented global trade system, with coalitions forming to counter U.S. tariffs. The EU, for instance, is exploring alliances with India, Indonesia, and Vietnam to stabilise WTO-based trade rules.

Trump’s new tariff system represents a high-stakes gamble to reshape global trade in America’s favour. While India is better positioned than China to navigate the fallout, both nations face economic pressures that could reshape supply chains and bilateral relations. The policy’s success hinges on whether it forces trade partners to lower barriers or triggers a spiral of retaliation and recession. As global markets brace for uncertainty, the coming months will reveal whether Trump’s tariffs fulfil his vision of a “wealthy America” or deepen economic divides at home and abroad. The world watches as this bold experiment unfolds, with India and China at the heart of its consequences.