India’s response to Trump’s tariff move will be measured, calibrated: Official

India’s auto components, chemicals, shrimps, steel, sectors are severely hit by the reciprocal tariff levied by the US, one government official familiar with the matter said, adding that the pharmaceutical sector appears to have been spared.

“India’s reaction to this development will be measured, calibrated and professional unlike some countries that threaten American imports,” a second government official said. Both officials asked not to be named. Hindustan Times reported on Thursday that India would not impose retaliatory tariffs on US imports.

Both officials, however, sought to look at the positives, insisting that India could get a competitive edge over key competitors in the United States, including China, Bangladesh and Vietnam on labour intensive sectors. Still, top commerce ministry officials and experts are currently at the Prime Minister’s Office (PMO) assessing the impact ahead of an official statement they added.

“With 27% effective reciprocal tariff imposed on India, practically, India has over 54-79% advantage China. Similarly, we have significant advantage over Vietnam and Bangladesh for textiles exports. These are some extremely positive factors of the Trump’s tariff move,” one of them said. While the US announcement lists 26% as the tariff levied on India, other documents, including those received by the ministry show that the rate is actually 27%.

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Still, in general, several labour-intensive sectors will gain vis-à-vis Asian and South Asian competitors, the two people added.

BSE Sensex, one of India’s benchmark stock indices opened low at around 806 points, but recouped some losses and was trading at 200.6 points at 11:07am. Still, this was a 0.26% fall from Wednesday’s close of 76,617.44.

The reciprocal tariffs seem to have been calculated by dividing the US’ trade deficit with a country by the value of goods imported from that country. Half that number (if it is greater than 10%) has been levied as a reciprocal tariff.

A closer reading of USTR documents reveals that the aim was to arrive at the “reciprocal tariff that results in a bilateral trade balance of zero”. But this requires assumptions on elasticity of imports and the price-pass through of tariffs; the USTR has assumed -4 as the import elasticity and 0.25 as the price pass-through.

India’s hopes of mitigating these tariffs now depends on a trade deal.

“When two leaders (Prime Minister Narendra Modi and President Donald Trump) have agreed to sign a BTA by the fall of 2025, aiming to take bilateral trade from $200 billion to $500 billion in five years, when a BTA framework is already on a fast-track mechanism and when bilateral engagements are well entrenched, any immediate reaction is unwarranted,” HT reported on Thursday quoting an unnamed government official.