Reciprocal Tariff by the U.S

I just wanted to share my thoughts on the reciprocal tariffs announced yesterday by the U.S. Government and what they could mean for Indian businesses.

You have probably read or heard about it in the news and on social media. But let me try to simplify it in my own words — do read and let me know what you think!

First, what is a tariff?

Probably you have heard the term “customs duty”. It’s a duty levied on the import of goods from other countries into India.

Let’s say you’re importing a Tesla into India as a CBU, a Completely Built Unit. If the car costs ₹50 lakhs, and the customs duty is 100%, the final price to the consumer becomes ₹1 crore.
So, for our easy understanding, let’s keep the meaning of tariff = customs duty.

What is a reciprocal tariff?

Now, take the reverse case — when Bajaj exports motorcycles or Hyundai exports cars from India to the U.S., the import duty in the U.S. is just 2.5%.
So, a ₹50 lakh car would only cost ₹51.25 lakhs there.

Now, the U.S. feels that countries like India are imposing high tariffs on American goods, while they allow those countries to export freely into the U.S.
To balance this, the U.S. has decided to match those tariffs — what they call a reciprocal tariff.
In simple terms: “You tax our goods, we’ll tax yours too.”

President Trump announced a 26% reciprocal tariff on Indian imports, effective April 9.
This, according to him, is aimed at protecting American workers and industries.

How will this impact Indian industries?

Let’s take a simple analogy.
Imagine 5 shops in a locality. If all 5 are closed on a particular day, no one gains or loses. Because the consumers will not find place to buy. But if only one is closed, that shop loses customers. Am I right?
That’s what’s happening here: since the U.S. has imposed tariffs on many countries, India will continue to have a level playing field. So, India doesn’t lose its competitive advantage.

What is the Impact on the U.S?

Let’s say an imported shirt that costs $100 will now cost $126 after tariffs for customers in the USA. Even then, it might still be cheaper than a locally made shirt. Ultimately, U.S. consumers will end up paying more.

This could cause:

• Inflation (prices go up),
• And possibly a recession if spending slows down.

On the other side, the U.S. government is also expected to collect over $1 trillion in additional revenue through these tariffs.

What is the impact on India?

Since all countries face tariffs, India’s exports won’t be at a disadvantage compared to countries like Bangladesh or Vietnam.

In fact, in some cases, India may gain an edge:

• For example, if a shirt from India and one from Bangladesh both cost $100 today,
  • India’s will cost $126 (26% duty),
  • Bangladesh’s will cost $137 (37% duty).
  • So, India becomes more competitive!

But some industries might see a decline:

• Gems & jewellery, automobiles, etc., may see reduced demand due to higher prices.
• That could lead to lower export volumes.

What about Indian IT and software?

There is no direct tariff on software or IT services. So, no immediate direct threat.
However, if businesses in the U.S. are hit by higher costs and reduced margins, they might cut spending — including IT outsourcing. So, Indian software exports could be indirectly affected.

There is good news too –

Pharmaceuticals and essential goods have been exempted from tariffs — so their exports remain unaffected.

Is this permanent?

Not necessarily. The U.S. government can modify, reduce, or remove tariffs anytime.
So this policy might undergo several revisions in the future.

Hope you liked this

Thank you

Prasad | 9845721255

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