India's recent move to propose retaliatory tariffs on certain US goods has added a layer of complexity to the already intricate trade relationship between the two nations. This development, which involves India suggesting increased tariffs on some US products, marks its first counteraction during President Donald Trump's second term in response to Washington's duties on steel and aluminum.
The decision comes at a delicate time, as India and the US are actively engaged in bilateral trade negotiations with the goal of finalizing a trade deal by the fall. The imposition of retaliatory tariffs could potentially cast a shadow over these discussions, although both sides have expressed a commitment to continue dialogue.
Background of the Tariff Dispute
The core of the issue lies in the US imposing 25% levies on steel and aluminum imports in March 2025, an extension of tariffs initially implemented in 2018 during Trump's first term. India, the world's second-largest producer of crude steel, argues that these measures affect $7.6 billion worth of India-made products imported into the United States. In response, India has notified the World Trade Organization (WTO) of its intent to suspend trade concessions by imposing similar duties on imports from the US. According to the WTO, India's reciprocal measures could be implemented 30 days after the notification date of May 9, 2025.
India's Perspective and WTO Regulations
India contends that the US safeguard tariffs, which were extended earlier in 2025, are inconsistent with the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Safeguards (AoS). India maintains that the US tariffs, while not formally declared as safeguard actions, effectively operate as such and breach WTO regulations. By invoking its right under the WTO's AoS, India is permitted to retaliate if another member imposes safeguard measures without proper consultation.
Potential Impact and Future Outlook
The proposed tariffs could have a significant impact on US exporters and potentially escalate trade tensions between the two countries. According to a report by the Global Trade Research Initiative (GTRI), the issue could be resolved if the US agrees to hold consultations with India or withdraws the tariffs. Otherwise, India is likely to proceed with its retaliatory tariffs, which could affect $7.6 billion in imports and result in $1.91 billion in duty collection.
Despite these trade tensions, both India and the US have expressed a desire to strengthen their economic ties. In February 2025, President Trump and Prime Minister Modi set a goal to more than double bilateral trade to $500 billion by 2030 and to negotiate a multi-sector Bilateral Trade Agreement (BTA). The two leaders aim to finalize the first phase of the BTA by the fall of 2025, with the hope of "increasing market access, reducing tariff and non-tariff barriers, and deepening supply chain integration". External Affairs Minister S. Jaishankar has stated that India is working towards finalizing a BTA with the United States by the fall of 2025, with expert-level discussions underway.
The situation remains dynamic, and the future of US-India trade relations will depend on how both countries navigate these challenges and leverage opportunities for mutual growth.
