Trump piles pressure on ‘friend’ Modi with 26% tariff on India

NEW DELHI – US President Donald Trump slapped India with some of the highest tariff rates imposed on any major US trading partner, saying his good personal ties with Prime Minister Narendra Modi did not affect his decision.

The Trump administration imposed a 26 per cent tariff on imports from India, which is slightly higher than the 20 per cent levy for the European Union, the 24 per cent for Japan and the 25 per cent for South Korea.

India’s levy though was far lower than China’s rate of at least 54 per cent and regional manufacturing rival Vietnam, which was hit with a 46 per cent duty.

The tariffs are a setback for Mr Modi’s government, which had already made several concessions to Mr Trump on his trade and immigration agenda in order to win a reprieve.

Mr Modi visited the White House in February, pledging to buy more American energy and defence goods and agreeing to negotiate a new bilateral deal with the US to boost trade.

Despite those moves, Mr Trump remained steadfast in his criticism of India’s high tariffs. 

“India, very, very tough. Very, very tough,” Mr Trump said at a news event at the White House on April 2 to announce the tariffs.

“The Prime Minister just left, and he’s a great friend of mine. But I said, you’re a friend of mine, but you’re not treating us right. They charge us 52 per cent.”

In an appendix to Mr Trump’s executive order, India’s reciprocal tariff was listed at 27 per cent. 

Indian officials were restrained in their response to the tariff action, while exporters highlighted the country’s relatively lower rate compared with rivals.

Analysts also pointed out that India is not as export-reliant as many other Asian nations, limiting the impact of the tariff action on its economy.

“It is a mixed bag and not a setback for India,” a government official told the Press Trust of India on April 3.

Indian exporters said the levies will ratchet up pressure on officials in New Delhi to hash out a trade pact with Washington soon.

While the tariffs would lead to a slowdown in global trade, India can take “solace in the fact that we are already engaged with the US” on a bilateral trade agreement, said Mr Ajay Sahai, director-general of the Federation of Indian Export Organisations.

“Our competitors like Vietnam and Cambodia have been hit harder than us,” he added.

Industry experts said engineering goods – which is the biggest category of exports to the US and includes products such as auto parts, power equipment and industrial machinery – will face a hit in the coming year. 

“We should lose about US$4 billion (S$5.4 billion) to US$5 billion of exports to US in the first year,” said Mr Pankaj Chadha, chairman of the Engineering Export Promotion Council of India, adding that this gap can be “made up with increased exports to other markets”.

GDP slump

The trade action will also likely hurt India’s already weak economy and push the Reserve Bank of India and the government to take more steps to prop up growth.

Asia’s third-largest economy expanded 6.5 per cent in the past fiscal year, the slowest pace since the Covid-19 pandemic. 

India’s exports to the US could drop by US$30 billion to US$33 billion, which is the equivalent of 0.8 per cent to 0.9 per cent of gross domestic product, according to estimates from Ms Madhavi Arora, an economist at Emkay Financial Services. 

Indian stocks and the currency slid, while bond yields fell to a fresh three-year low on April 3.

Pharmaceutical stocks traded higher after the sector was exempted from higher tariffs. Semiconductors and automobiles were also exempted from the reciprocal tariffs.

Ahead of the move, the Trump administration signalled India would be a target of the new duties, given that New Delhi charges some of the highest tariffs of any major economy.

Mr Trump has repeatedly criticised India’s high levies, branding the country as the “tariff king”.

Over the past few weeks, New Delhi overhauled its tariff regime, reducing import duties on around 8,500 industrial items, including on prominent American goods such as bourbon whiskey and high-end motorcycles made by Harley-Davidson, satisfying a long-time grievance of Mr Trump. 

The government has also indicated its willingness to buy more American oil, liquefied natural gas and defence equipment to narrow its bilateral trade surplus.

Officials are also considering US demands to reduce import tariffs on American farm products, Bloomberg News reported last week, although agriculture is a politically sensitive issue in India.

Mr Modi, who was one of the first foreign leaders to meet Mr Trump after his return to the Oval Office, recently lavished praise on the US President, underscoring their close personal ties.

The two nations agreed to conclude the first tranche of a trade deal by Autumn 2025 and boost bilateral trade to US$500 billion by 2030, up from US$127 billion in 2023, following the meeting. 

“The reciprocal tariff announcements are worse than expected at the global level and for India,” said Mr Sonal Varma, an economist at Nomura Holding.

“The Indian government is likely to lower tariffs on a broad US imports, purchase more of US energy and increase market access in order to strike a deal and lower reciprocal tariffs over the course of the coming months.” BLOOMBERG