US can go beyond rates to coerce India under reciprocal tariff plan
February 22, 2025
The US has left room to impose punitive taxes on imports under its reciprocal tariff plan if levies do not yield desired results, a study says.
While the world awaits clarity on what the reciprocal tariff plan would look like, the US has kept sufficient leeway to impose punitive taxes on imports in the guise of addressing non-tariff barriers if the levelling of levies do not produce results it wants, according to a study.
“Around 75% of US exports to India already face tariffs below 5%, so reciprocal tariff increases may not be effective. Instead, the US may pressure countries to lower tariffs by citing non-tariff barriers, local taxes, and currency policies—without needing justification,” a report by Global Trade Research Initiative’s founder Ajay Srivastava said.
While India has never been singled out for currency manipulation, it does impose Integrated Goods and Service Tax (IGST) on imports that are over and above the customs duty. Even compensation cess is collected on imports of those products on which cess is collected on domestic production. So the issue would not settle just with headline customs duties.
It is still unclear how the tariffs will be applied—whether at the product level, sector level, or country level. If applied at the product level (specific tariff lines), the impact may be limited, as India and the US may not trade the same products. However, if imposed at the sector level, entire industries could face serious disruptions.
The maximum impact will come if the reciprocal tariffs are applied sector-wise that would lead to disruptions in entire industries.
“At the broad sector level, the potential tariff gaps between India and the US vary across the sectors. The gap is 8.6% for chemicals and pharmaceuticals, 5.6% for plastics, 1.4% for textiles and clothing, 13.3% for diamonds, gold, and jewellery, 2.5% for iron, steel, and base metals, 5.3% for machinery and computers, 7.2% for electronics, and 23.1% for automobiles and auto components . The higher the tariff gap, the worse affected a sector will be,” GTRI said.
The maximum hit will come to the gems and jewellery sector, which is the second biggest export to the US at $ 12 billion. In percentage terms the auto sector will see maximum tax increase but overall exports of India to the US in this sector stands at $ 2.8 billion.
India’s exports to the U.S. span 30 sectors, with six in agriculture and 24 in industry, each facing different tariff impacts.
The hardest-hit sector will be fish, meat, and processed seafood, with $2.58 billion in exports facing a 27.83% tariff differential. Processed food, sugar, and cocoa exports worth $1.03 billion will also struggle with a 24.99% tariff increase. Cereals, vegetables, fruits, and spices, valued at $1.91 billion, face a 5.72% tariff differential, according to GTRI analysis.
Dairy products, worth $181.49 million, will be severely affected by a 38.23% tariff differential, making ghee, butter, and milk powder costlier and reducing their market share. Edible oils, with $199.75 million in exports, face a 10.67% tariff, increasing costs for coconut and mustard oil. Alcohol, wines, and spirits face the highest tariff hike at 122.10%, though exports are only $19.20 million. Tobacco and cigarettes, valued at $94.62 million, will remain unaffected, as the US already imposes 201.15% tariffs, creating a negative tariff differential (-168.15%).
Sectors like ores, minerals, and petroleum, worth $3.33 billion, have a negative tariff differential of -4.36% while garments, with $4.93 billion in exports, have a -4.62% differential which means no tariffs will be applied.
If the US imposes a single tariff on all products from India, it would be an additional 4.9%. Currently, U.S. goods face a weighted average tariff of 7.7% in India, while Indian exports to the U.S. face only 2.8%, leading to a 4.9% difference. If applied at the product level (specific tariff lines), the impact may be limited, as India and the US may not trade the same products, GTRI said.
[The Financial Express]
