On April 2, (at around 4.00 p.m. (EST), President Trump in his characteristic fashion, threw a bombshell on the way international trade and trade negotiations were conducted by unilaterally announcing a set of shockingly high tariffs on US trading partners, causing great consternation and confusion among all in addition to disrupting the global stock markets.

First, he announced a blanket additional ad valorem rate of duty of 10 percent on all articles imported into the customs territory of the United States effective 12.01 a.m. April 5. In addition, he announced a set of reciprocal tariffs, higher than the base rate of 10%, on 57 countries including India, the rate depending on the country, effective 12:01 a.m. eastern daylight time on April 9, 2025. The rate was calculated a typical Trumpian approach without any known rational economic basis. It was equal to half that country’s trade surplus with US as percentage of its total exports to US. In 2024 US deficit with India in trade in goods was $ 45.664 billion and US imports from India stood at $ 87.416 billion. The trade deficit was 52.24%. Half of that is 26.12%. The reciprocal tariff on India was therefore set at 26%.

The only countries that were not subject to these higher reciprocal tariffs were countries with whom (i) US had a surplus in goods trade or (ii) a trade deficit of less than 20%. The FTA status of the country does not seem to have played any role. Israel, Jordan, and South Korea, with all whom US has FTAs were all subject to higher reciprocal tariffs.

This announcement was accompanied by a warning that “Should any trading partner retaliate against the United States in response to this action through import duties on U.S. exports or other measures, I may further modify the HTSUS (Harmonized Tariff Schedule of US) to increase or expand in scope the duties imposed under this order to ensure the efficacy of this action.”

What were the Reasons behind these Irrational Tariffs?

As is well known Trump has a very unhealthy obsession with trade deficits and a strong conviction that large and persistent annual U.S. goods trade deficits, constitute an unusual and extraordinary threat to the national security and economy of the United States and that these deficits are caused by a lack of reciprocity in US bilateral trade relationships, disparate tariff rates and non-tariff barriers, and U.S. trading partners’ economic policies that suppress domestic wages and consumption

Trump hopes his reciprocal tariffs will Make America Great Again (MAGA) and restore its former manufacturing leadership in the world- raise its manufacturing output share in global manufacturing out from 17.4% in 2023 to an earlier glory of 28.4% in 2001! Indeed, another warning in the April 2 Reciprocal Tariff announcement accompanying the one already noted earlier states that “Should U.S. manufacturing capacity and output continue to worsen, I may further modify the HTSUS to increase duties under this order”

What were the Initial Global Reactions to these Tariffs?

While all the countries expressed their dismay and unhappiness with the new tariffs, their reactions were varied. Many withheld their detailed response to the new tariffs (as did India initially), some other asserted that they would hold their national interests, (although truthfully, none except for China have taken any concrete counter action). China announced on April 4th, that it would immediately increase its tariff on imports from US to a matching 34%, effective 12:01 April 10.

While the official Indian position was neutral or more exactly non-existent in the beginning, many Indian commentators expressed their relief in the fact that some of the poorer Global South countries, such as Vietnam were targeted with much higher tariffs since that would enable India to increase its exports to US taking some of new export opportunities because of the reduced exports from these countries (So much for India’s ambitions to be a leader of Global South!). Few, if any, advocated that India should follow the example of China. However, On April 7, India’s External Affairs Minister posted on X “Good to speak with @SecRubio today. Exchanged perspectives on the Indo-Pacific, Europe, Middle East/West Asia and the Caribbean. Agreed on the importance of the early conclusion of the Bilateral Trade Agreement.”

On April 8, at the NRCC (National Republican Convention Committee) Annual Dinner, Trump stated or rather boasted, talking about his reciprocal tariffs, “I am telling you; these countries are calling us up, kissing my ass. “Please, please, sir, make a deal. I’ll do anything. I’ll do anything, sir.”

Subsequently, on the same day, April 8, he issued another Executive order stating “In recognition of the fact that the PRC has announced that it will retaliate against the United States in response to Executive Order 14257, the HTSUS shall be modified” by increasing the reciprocal tariff on China from 34% to 84%! – though this increase in reciprocal tariff on China from 34% to 84% had already been announced by Trump in his social media feed on TruthSocial on April 7th evening! This increase was effective 12:01 a.m. April 9.

China responded immediately to this new US tariff. On April 9, the State Council Tariff Commission of the PRC announced that, in response to the Executive Order dated April 8, 2025, an 84 percent tariff would be imposed on all goods imported into the PRC originating from the United States, effective 12:01 April 10.

In response, Trump issued another E.O. on April 9 (i) temporarily suspending, “for a period of 90 days, till 12:01 a.m. eastern daylight time on July 9, 2025 except with respect to the PRC, application of the individual reciprocal ad valorem duties imposed for foreign trading partners” replacing these with an additional ad valorem rate of duty of 10%, and (ii) increasing the reciprocal duties on imports from China from 84% to 125%.

For weeks, President Donald Trump has charged ahead with plans to impose steep new tariffs on imports despite warnings from economists and others that the policy could trigger economic chaos. While administration officials asserted that this 90-day suspension of reciprocal tariffs was part of Trump’s grand strategy, others suggested that a multiday plunge in global stock markets, had played a role in the change in course. Trump himself had indicated at one point that turmoil in the financial markets following the implementation of the tariffs played a role in his decision

China in its usual aggressive fashion reacted on April 11 by increasing the tariffs on imports from US from 84% to 125% effective April 12. The announcement by the Tariff Commission of the State Council carried a cautionary note (warning?) that “Even if the United States continues to impose high tariffs, it will have no economic meaning, and it will become a joke in the history of the world economy. At the current tariff level, there is no possibility of market acceptance of U.S. goods exported to China. If the United States continues the tariff digital game, China will ignore it. However, if the United States insists on continuing to substantially infringe on China's interests, China will resolutely counter it and accompany it to the end.”

This increase in tariffs on imports from US was announced by China on April 11 (Beijing time). Trump has yet to respond with any counteraction to this increase unlike the previous two times when he immediately increased the reciprocal tariffs on China. Whether this was due to the warning given by China, or the lack of any non-tariff related alternate sanctions on China is not clear, since China is already sanctioned with export controls on technologies and there has been very little of ITAR (International Traffic in Arms Regulations) controlled items for more than two decades. In addition, the Chinese government had already on April 4, announced implementation of export control measures on seven categories of medium and heavy rare earth-related items, with immediate effect.

According to USGS (US Geological Survey) estimate, the US net import reliance as a percentage of apparent consumption was more than 95%, and according to WITS (World Integrated Trade Solutions) Trade Statistics, in 2023 total US imports of Rare-earth metals, scandium and yttrium was 400.171 T valued at $ 22.096 Million. Of these, imports from China accounted for 99.29% by weight and 98.73 by value. In value this was very insignificant portion of total exports from China to US of $ 426.885 Billion! (less than 0.01%!)

Trump has yet to respond with any of these Chinese counteractions- either to this tariff increase unlike the previous two times when he immediately increased the reciprocal tariffs on China or to the new export control restrictions on US. Whether this is due to the warning given by China or the lack of availability any non-tariff related alternate sanctions on China is not clear, since China is already sanctioned with export controls on technologies and there has been very little export of ITAR controlled items for more than two decades, is not clear. Although on April 15, his press secretary read from a statement from Trump that “The ball is in China’s court. China needs to make a deal with us. We don’t have to make a deal with them.”

It is most unlikely that China will take the initiative in starting negotiation with US on tariffs.

This last statement of Trump seems more like a gasp from the death throes of his grand Reciprocal Tariff strategy, since China had no time indicated a desire for talks without some prior clarity on these reciprocal tariffs.

Considering these Developments what should be India’s Strategy?

There are three options. First, take a bold action, like China, by imposing counter actions on USA. Second, follow through India’s current strategy, as articulated by the Foreign Minister which seems to be the conclusion at the earliest of a Bilateral Trade Agreement or Third, continue with BTA negotiations but not in haste and panic, and definitely not knowing beforehand from Trump what are his end goals are in a BTA.

Unfortunately, India does not have much choice in taking any counter action, like China, since Trump can employ a range of counter actions against India in both tariff and non-trade related areas. His reciprocal tariff strategy may be in its death throes but he is just at the very beginning of his four-year term and has almost his full term to do damage to Indian interests.

India’s goal to become a major pole in a multi-polar global order depends much on close cooperation and collaboration with US on high-technology and defence industries, as does its goal to develop its domestic technological and defence industries to counter any adverse action by its major security challenge, China, in view of the still unresolved boundary issues. India has the advantage, if it chooses to exercise it, of being in STA category in US technology export control regime. In addition, it is already a major importer of ITAR controlled items from US- valued at US $ 1487.5 Million in 2019, $ 675.8 Million in 2020 and $ 857.9 Million in 2021. All these can grind to a halt by Trump through just a couple of Executive Orders! Given that Trump seems to be relieved that no country other than China has taken any counter action against his reciprocal tariffs, it is best that India too let it go!

What about BTA Negotiations?

The Indian objective in a BTA with USA is apparently to deepen US-India trade relationship in mutually beneficial way and promote trade and growth that ensures fairness, national security and job creation. Secondary objective is to lessen any adverse effects of the reciprocal tariff policy of Trump. Whether this is feasible in any negotiation with Trump is open to question.

While this certainly is (or was?) the traditional way of looking at BTAs and FTAs, this is certainly not Trump’s approach to international trade. He enunciated in clear terms the rationale behind his ‘Fair and Reciprocal Plan” in his E.O. of February 13, 2025 - “Reciprocal Trade and Tariffs”. “It is the policy of the United States to reduce our large and persistent annual trade deficit in goods and to address other unfair and unbalanced aspects of our trade with foreign trading partners”, since in his opinion “The trade deficit of the United States threatens our economic and national security.”

As many economists of repute, in fact almost all, have argued that tariffs have only a minor role to play in affecting trade balances and may under certain circumstances higher tariffs may increase the trade deficit. Now India is one of the countries with whom US has persistent and growing deficits in trade in goods. With India’s target of much higher bilateral trade between the two countries, it is quite possible, as has happened in recent years, that the US trade deficit with India may in fact increase. Now as mentioned earlier Trump’s E.O. of April 2, had a specific section which, as already mentioned earlier stated, “Should U.S. manufacturing capacity and output continue to worsen, I may further modify the HTSUS to increase duties under this order.” As mentioned above one of the major reasons for Reciprocal Trade and Tariffs was to reduce the persistent annual trade deficit in goods. So BTA/FTA by itself would not be the end of further actions under Reciprocal Trade and Tariffs Plan. So, what happens if India does have a BTA and the US trade deficit, both in aggregate and with India, increases, would India be exempt from the new reciprocal tariff regime? Would that possibility be even addressed? In short would a BTA remove the threat of further reciprocal tariffs? The most important and relevant question is with whom the final agreement will be negotiated. It is important to realise that in the Trump administration all except the President, are deferential to Trump and do not have independent views, at least none has been expressed so far in any of the decisions (all controversial and many held to be legally unsound in many federal courts). Therefore, unless the Indian negotiators have direct contact with and information about his intentions on BTA and tariffs, it is very unlikely that a BTA negotiated with an administration functionary, even at the Secretary level, is really a guarantee that Trump would adhere to it. It is significant that in the first round of serious talks that the US administration had with a trading partner on trade issues, including reciprocal tariffs, was with Japan and President Trump unexpectedly joined the talks even though the talks were originally scheduled to be led by the Secretary of Treasury and Commerce. Not only did he attend the first round of talks but also announced in social media, after the talks. “A Great Honor to have just met with the Japanese Delegation on Trade. Big Progress!” accompanied by a photo with the Japanese leader of the trade talks. In contrast, India’s first round of BTA talks with the US was with a US team led by representatives from the Office of the U.S. Trade Representative at an Assistant Secretary level without any reference to tariffs.! If and when India does enter into any serious discussion with US trade issues including reciprocal tariffs, it should include, at some stage, the involvement of Trump himself. Anything less may not even last the current Trump term.

It would, however, be not wise to break off BTA negotiations, since that may be taken as a breach of faith by Trump and result in unforeseen actions against India. In any case, the India negotiators can always condition that any draft agreed to by both sides has to be passed by the Indian Parliament!

So, in brief (i) no Indian action to counter the reciprocal tariffs, (ii)continue with the negotiations but not in haste with a deadline and (iii) keep the Indian public constantly kept informed and not be presented with a signed final agreement!

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>