Donald Trump's tariffs could fundamentally reshape India’s export strategy, warns EY

The U.S. government, led by President Donald Trump, announced new tariffs on almost all its trading partners through a major Executive Order. The day, April 2, 2025, was called "Liberation Day" by the administration, marking a big change in the country’s trade policy. This bold move aims to empower American industry and recalibrate global trade equations.

10% baseline tariff effective April 5; India to face 26% tariff from April 9

According to the EY report on US tariffs, all imports into the U.S. will attract a baseline tariff of 10% starting April 5, 2025. These rates will be escalated as per country-specific slabs effective from April 9. For India, the applicable rate is 26%.

These new tariffs come on the heels of previous trade measures. On March 26, the U.S. imposed a 25% tariff on non-U.S. automobiles and select auto parts, including engines, powertrains, and electrical components, which took effect on April 3. Earlier, a blanket 25% tariff on steel and aluminum imports from all countries—including India—was implemented on March 12.

Comparative tariff landscape: India fares better than China and Vietnam

Imports from India will now be subjected to a combined 26% tariff—above existing duties—while Chinese imports will face a 34% rate, and Vietnam will be hit with 46%. While the United States imposes a flat 25% tariff on goods from Mexico and Canada, the majority of their products are shielded under the United States-Mexico-Canada Agreement (USMCA), putting them at a strategic advantage over India.

Nevertheless, the EY report stated that India has a competitive advantage of 7% and 19% compared to China and Vietnam, respectively, making Indian exports potentially more competitive despite the tariff hike.

It is worth noting that the new ad valorem duties generally apply only to the non-U.S. content of imported goods, and only if at least 20% of the value originates from the U.S.

Key sectors excluded from reciprocal tariffs

The US has exempted certain sectors from reciprocal duties, considering the critical needs of various countries for these materials. These exemptions ensure that specific essential resources remain unaffected by additional tariffs. The excluded sectors consist of products such as essential minerals, metals, pharmaceuticals, specified chemicals, and semiconductors, per the EY report.

 Diversification and FTAs could offset U.S. challenges

India has signed a trade agreement with the European Free Trade Association (EFTA), which includes Iceland, Liechtenstein, Norway, and Switzerland. India is also accelerating discussions with the EU. Similarly, talks with the UK are also progressing, with both the FTAs expected to conclude by the end of this year. This will also open markets for India and help in reducing the challenges (if any) coming from the US, per the EY report.

These agreements aim to broaden India’s export base across Europe, the Middle East, Africa, and Latin America—helping cushion any potential fallout from U.S. trade restrictions.

A call for a Bilateral Trade Agreement

In pursuit of ‘Mission 500’—boosting U.S.-India trade to $500 billion by 2030—EY recommends that India fast-track a multi-sector Bilateral Trade Agreement (BTA) with the U.S. A targeted BTA could act as a buffer against current and future trade shocks, ensuring continuity and growth in one of India’s most crucial bilateral trade relationships.

Conclusion

While the new tariff regime signals uncertainty, it also opens up avenues for Indian exporters to reposition themselves globally. Strategic trade diplomacy, sector-specific focus, and timely bilateral negotiations will be key to navigating this recalibrated global trade terrain.