The BGA India team, led by Managing Director Anuj Gupta, wrote an update to clients on the new 25 percent U.S. tariff on India.

Context

  • Two days ahead of the U.S. tariff deadline on August 1, President Donald Trump, through his Truth Social platform, announced that the United States will levy 25 percent tariffs on India —one percentage point lower than the 26 percent announced April 2. While referring to India as a friend, Trump said he imposed the tariffs on the country due to its long-standing tariff and nontariff barriers and its close ties with Russia and China. He also said that India will face an additional “penalty” for its imports of Russian arms and crude oil.
  • India has issued a measured response, indicating that it remains committed to a mutually beneficial deal and will continue engaging with the United States to achieve this objective. The government added that India will continue to advance its national and economic interests by protecting the welfare of farmers; entrepreneurs; and micro, small and medium-sized enterprises, referring to the India-U.K. trade deal signed earlier this month.

Significance

  • Trump’s announcement comes after both sides reached a temporary deadlock following multiple rounds of bilateral trade agreement discussions, even though the negotiators remain optimistic about an early conclusion of the talks. Despite the progress made by trade interlocutors on the early start to trade agreement negotiations, issues remain. A U.S. trade team is now expected to visit India from August 25 for the next round of negotiations. 
  • After agriculture and dairy imports, the latest stumbling block seems to be India’s reluctance to automatically recognize certain U.S. regulatory standards instead of requiring approval or review by Indian regulators. India is also seeking preferential market access over its competitors for labor-intensive products, such as textiles, gems and jewelry, footwear, leather and pharmaceuticals. India has insisted on a “fair, equitable and balanced” trade agreement without deadline pressures.
  • With a deal still being negotiated, the 25 percent tariffs are viewed as a short-term risk to Indian exports, but optimism remains that both sides will conclude a deal before Trump and Indian Prime Minister Narendra Modi meet in India for the Quadrilateral Security Dialogue (“Quad”) leaders’ summit, perhaps around September or October. India’s tariffs will be considerably higher than what Trump imposed on other Asian countries, including Japan, Indonesia, the Philippines and Vietnam, which secured rates of 20 percent or less. Indian negotiators aim to bring the average tariff rate closer to 15 percent after reaching a deal with the United States.

Implications

  • India will likely accelerate its strategic approach to diversify exports to alternative trade blocs in the coming months even as it works with the United States to finalize a trade agreement. This includes accelerating free trade agreements that are in place with Australia and the United Arab Emirates, kick-starting implementation of free trade agreements with the United Kingdom and European Free Trade Association and accelerating negotiations with the European Union and other partner countries.
  • BGA India recommends that companies watch the emerging negotiations closely. An early conclusion of a trade agreement with the United States could secure enhanced market access, supply chain diversification and new investment avenues into India. However, the imposition of higher tariffs is expected to impact Indian exports in the near term, even as the two sides aim to strike a mutually beneficial trade deal.

If you have questions or comments, please contact BGA India Managing Director Anuj Gupta at agupta@bowergroupasia.com.

Best regards,

BGA India Team

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BowerGroupAsia