Trump’s sweeping tariffs jolt global trade, unsettle supply chains, and trigger retaliatory moves — but for India, the chaos could present a rare chance to gain ground in exports, renewables, and economic diplomacy
Whether or not it’s a Chinese curse, President Donald Trump’s election has forced the world “to live in interesting times.”
On April 2, in one fell stroke of his barbed-wire-like signature, the United States President altered all permutations of world trade when he imposed reciprocal tariffs on about 60 countries.
The customised levies, announced in a curated circus in the White House’s Rose Garden on what Trump called ‘Liberation Day,’ sent shock waves through global markets and triggered reciprocal actions from trading partners, including China, whose exports have been hit by 54% levies, and the European Union, which is looking at a 20% tax on its exports. For India, a trade partner that’s negotiating a bilateral trade deal with the US, Trump has offered a final ‘discounted rate’ of 26%, after the initial 27% announced on Wednesday.
Trump’s actions, although expected, have rattled supply chains across the world, upsetting policy plans of almost every nation trading with the world’s largest economy. And has threatened a world trade order that has for better or worse been in place for at least two generations, since The General Agreement on Tariffs and Trade (GATT) and its successor the World Trade Organization (WTO) took shape in the post second-world-war world in the 20th century.
Equity, commodities and currency markets reacted in red, wiping out trillions of dollars amid fears of inflation and a recession akin to the Great Depression that had crippled the US economy in the last 1930s. If implemented as announced, the new tariffs will raise the average US tariff rate to 22.5%, surpassing the approximately 20% increase enacted by the Smoot-Hawley Tariff Act of 1930, introduced in response to the onset of the Great Depression, which had led to a global trade war that exacerbated global economic downturns in the last century.
Trade Wars
And while Treasury Secretary Scott Bessent urged other countries not to retaliate against new US tariffs, China has already responded. A day after calling on the US to “immediately cancel” the tariffs and resolve trade differences through dialogue,” the Asian giant has imposed 34% blanket tariffs on all American imports.
European Commission President Ursula von der Leyen has also announced that the EU is preparing countermeasures to protect its interests and businesses if negotiations fail. While France has said it could respond by regulating the use of data by American big technology companies. In response, Trump’s adviser billionaire Elon Musk has suggested a zero tariff free trade zone between EU and the US, indicating that Trump’s move may not have uniform backing from his own supporters. This is also evident in the widespread protests that broke out across the US over the weekend.
The series of US tariffs will begin with a universal 10% tariff effective April 5, 2025. This initial tariff will be replaced by country-specific rates on April 9, impacting imports from more than 60 nations. Exemptions to these tariffs include aluminum, steel, and auto products already subjected to a 25% tariff under Section 232; critical items such as pharmaceuticals, semiconductors, copper, and energy products; and imports from Canada and Mexico that meet the United States Mexico Canada Agreement (USMCA) qualifications. Additionally, goods comprising at least 20% US content will be taxed only on the foreign portion.
India’s Opportunity?
And while the jury is still out on the extent to which Trump’s moves could impact India, there is some reason for optimism. Former Reserve Bank of India Governor Raghuram Rajan, who called the Trump administration’s reciprocal tariffs a “self-goal,” is among experts who believe the impact on India is likely to be “smaller.”
According to research by the Global Trade Research Initiative, the US’ reciprocal tariff rate of 26% on Indian goods—lower than the 54% on China, 46% on Vietnam, 37% on Bangladesh, and 36% on Thailand—offers India a competitive advantage in some key sectors such as textiles, machinery, auto and toys. But this will require the country to significantly improve its abilities in large-scale production, domestic value addition, and overall competitiveness.
High US tariffs on exports from China and Bangladesh could allow Indian textile makers to expand presence in the US. While Taiwan remains a leader in semiconductor production, India could gain ground in packaging, testing and lower-end chip manufacturing—provided it bolsters infrastructure and policy support. A partial shift in supply chains away from Taiwan, prompted by 32% tariffs, could in theory benefit India.
Countries, including India, are already looking to manage the risks in the new world that Trump created—a global shock that reminded many of the demonetisation announcement by India in 2016. Going by the paper written by Stephen Miran, economist and Trump-selected chair of the US’ Council of Economic Advisers, tariffs are the US’ instruments to extract concessions and economic advantages from other countries—whether allies or adversaries.
Climate Trajectory
The sweeping Trump tariffs are bound to raise concerns about potential setbacks in global renewable energy investments. The tariffs, particularly those targeting clean energy technologies, could threaten to slow progress in combating climate change, unless nations, including India and China, stay committed to their current renewable energy expansion plans.
The COVID-19 pandemic serves as a pertinent example. During the pandemic, economic instability and rising interest rates made financial institutions more cautious about funding renewable energy projects. According to the International Energy Agency, small- to medium-sized enterprises became more hesitant to invest in renewable applications like heat pumps and solar panels.
Yet, nations seem better prepared for disruptions after the US tariff increases. India’s recent steps to strengthen ties with China, a crucial supplier of renewable energy equipment, and the EU, which plans to increase its investments in India’s clean and green technologies, may hold hope for the way forward.
While India “carefully examines” the implications of US President Donald Trump’s tariff announcements, strengthening economic relations between Europe and Asia, which contributes nearly 35% to global trade, could, over time, reduce dependence on the US market.
India and EU have already begun focusing on their much-anticipated free trade agreement talks. And while not ideal, going by treasury secretary Bessent’s logic, if the tariffs are a negotiating tool for Trump’s administration, India and the US will be back to the table seeking a better bilateral deal.
While in the immediate future, these trade tensions are likely to inflict economic challenges globally, the US has perhaps handed the world an opportunity to build a truly multi polar world by wrecking the neoliberal world order it had itself put in place.
It could also have handed India a strategic opportunity to push reforms to and rev up its own economic engines to navigate the challenges that Trump’s tariffs have thrown up to build a cleaner, bigger economy.
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