Additional And Reciprocal Tariffs Imposed By The US And The Impact On India

Introduction

On 02 April 2025, the President of the United States issued Executive Order 14257 to impose universal ad valorem tariff @10% on all goods imported into the US, from all its trading partners to rebalance global trade flow. This universal 10% tariff has taken effect from 05 April 2025.

Further, imports from more than 50 countries, including India, would be subjected to higher country-specific reciprocal tariffs on all goods with effect from 09 April 2025, irrespective of existing bilateral or multilateral trade agreements. China would suffer a 34% tariff whereas India will face tariff @26%.

Additional and reciprocal tariff is imposed under HTSUS 9903 of Chapter 99 [Temporary Modification]. All goods entered for consumption or withdrawn from warehouses after the effective date would be subjected to a higher tariff. Other applicable tariffs (e.g., antidumping/ countervailing duties, duties imposed under Section 301 of the Trade Act of 1974, etc.) would also be levied in addition to the universal 10% tariff or country-specific reciprocal tariff.

Reciprocal duty takes into consideration not only import duty levied on US origin goods by the respective countries but also trade deficit and non-tariff trade barriers. It also ignores countervailing duties (equal to tax levied on domestic goods i.e. Central excise / GST) imposed on the imported goods to provide level playing field to the domestically produced goods.

Goods containing 'at least 20 percent of their value generated from US content' would be subjected to higher tariffs only on the non-US origin content of the good. Thus, goods containing US content would be subjected to tax at pro-rated lower value.

Exception and exclusion

• Goods loaded onto a vessel at the port of loading and in transit on the final mode of transit before 12:01 a.m. EDT on 05 April 2025 (for Universal 10% tariff) or 09 April 2025 (for reciprocal tariff).
• Steel and aluminium products; automobiles and automotive parts which are subjected to higher duty.
• Goods listed in Annex II of the Executive Order, which includes specified goods of Chapter 25 & 26 [graphite, phosphate, magnesium, asbestos, mineral ores and concentrates], chapter 27 [coal and Petroleum products], chapter 28 & 29 [Chemicals], chapter 30 [pharmaceuticals & medicaments], chapter 31 [Fertilizer], chapter 32 & 34 [dyes & pigments, surfactants], chapter 39 [Polymers], chapter 40 [natural rubber], chapter 44 [lumber & wood products], chapter 49 [printed materials], chapter 71 [precious & semiprecious metals], chapter 72 [ferro-alloys], chapter 74, 79, 80 & 81 [copper, zinc, tin products], and chapter 85 [electronic components].

Impact on India

Higher tariff will have a significant impact on Indian exporters and US importers. US importers would reevaluate their procurement and would also renegotiate price which will squeeze margin. While minerals, pharmaceuticals and base metals are not subjected to higher tariff, sectors such as electronics and smartphones, gems and jewellery, fisheries, solar energy modules, and textiles and apparel are likely to face significant impact.

• As a large number of goods listed in Annex II with HTSUS code are not subject to higher duty, Indian exporters should determine very carefully applicable HTSUS code as well as description mentioned against such code to assess exclusion from the higher tariff.
• Indian exporters may realign their production and cost records to obtain benefit available for US content in the export product.
• Compare competitor's advantage and disadvantage on tariff score. Exporters from China, Bangladesh, Sri Lanka, Vietnam, Thailand, Indonesia etc. face higher tariff than India creating an opportunity to the Indian exporters.
• Indian exporters and US importers need to work together to seek product exclusion under Annex II.

Comments

The Indian Government is actively negotiating a bilateral trade agreement with US. Indian exporters may also approach negotiators / government for inclusion of their products in the negotiations.