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%.

In the wake of retaliatory tariffs imposed by China on US goods, another Executive Order dated 8 April 2025 was issued increasing reciprocal tariff from 34% to 84%. In yet another Executive Order dated 9 April 2025, reciprocal tariff was further increased from 84% to 125%. However, reciprocal tariff imposed on all other countries has been suspended till 9 July 2025.

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 All goods entered for consumption or withdrawn from warehouses after the effective date would be subjected to a higher tariff.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

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.

Comment

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.

To discuss further options, Khaitan & Co’s international trade team remain available to discuss how businesses can navigate the uncertainty, and mitigate the impact, of the unprecedented tariff actions invoked by the US.

Original document published on 7 April 2025 has been updated on 10 April 2025.

• Dinesh Agarwal (Executive Director), Mayank Jain (Partner) & Vikram Naik (Principal Associate)

For any queries please contact: editors@khaitanco.com