Why does India plan to retaliate with Tariffs in 2025?
India’s decision in May 2025 to respond to U.S. tariffs on Indian steel and aluminum marks a significant escalation in global trade tensions. By formally notifying the World Trade Organization (WTO) and proposing retaliatory tariffs, India has positioned itself as both assertive and rule-abiding. This blog breaks down what happened, who’s affected, and what it means for the global economy.
What Triggered India’s Tariff Action Against the U.S.?
- Trigger: In March 2025, the U.S. reimposed 25% tariffs on steel and aluminum imports from India, similar to actions taken in 2018.
- India’s Response: On May 12, India notified the WTO about its intent to impose equivalent tariffs on U.S. products worth $1.91 billion. These actions aimed to offset the $7.6 billion blow to Indian exports. Read full Reuters report
- WTO Mechanism: India activated formal dispute resolution procedures under WTO rules. Explore WTO Dispute Mechanism
Which Sectors Are Hit Hardest by the New Tariffs?
Steel and Aluminum
- Export Impact: ~$7.6 billion lost.
- Tariff Rate: 25%
- Key Players: Tata Steel, JSW Steel
Agriculture
- Targeted Goods: Almonds, apples, walnuts, lentils.
- Effect: Prices could spike in India; U.S. farmers could lose a large market.
Pharmaceuticals
- Exports to U.S.: $8.73 billion EY Trade Report
- Current Status: No tariff yet—but vulnerable.
Textiles & Apparel
- Tariff Rate: 27% Economic Times Source
- Impact: Shrinking U.S. demand, lower margins.
Automotive Components
- Tariff Rate: 25% EY Sector Impact PDF
- Risks: Export disruption, cost spikes.
Gems and Jewellery
- Export Size: ~$9 billion Reuters Coverage
- Tariff Rate: 27%
What Do Past Disputes Reveal About Tariff Retaliation?
- 2019 Reference: India imposed tariffs on 28 U.S. goods.
- 2023 Resolution: Six WTO disputes resolved amicably. Read more
- Insight: Tariff retaliation can pressure parties back to the negotiating table.
How Do These Tariffs Impact the Indian and Global Economy?
Impact on India
- GDP Slowdown: Projected loss of 0.1%–0.3% Deloitte Outlook
- Inflation: Higher import costs could marginally raise CPI.
- Trade Deficit: Widening risk in manufacturing-heavy sectors.
Impact on the U.S.
- Consumer Costs: 2.3% increase in price levels.
- Family Budget: ~$3,800 loss per household annually Yale Budget Lab
- Export Strain: Loss of access to India’s massive consumer market.
Global Impact
- Trade Volume: WTO forecasts 0.2% decline WTO Forecast
- North American Exports: 12.6% fall WEF Trade Tracker
- Global GDP: Slowing to 2.3% UNCTAD Report
Will This Tariff Dispute Affect India’s FTAs?
- India-U.S. Talks: Likely delays in FTA finalization. TOI Article
- Global Negotiations: EU, UK, and ASEAN may reassess deals.
- Strategic Messaging: India’s firm action via tariffs and WTO signals its readiness to defend trade interests multilaterally.
Can WTO Still Uphold Trade Fairness Amidst Rising Tariffs?
- Track Record: 600+ disputes since 1995 WTO Dispute Records
- Challenges: Dysfunctional appellate system.
- Trust Issues: U.S. block on judge appointments has undermined confidence.
- Rule Violations: Section 232 steel tariffs, China’s industrial subsidies, EU’s carbon border tax—all under scrutiny.
- Relevance Test: WTO’s credibility now depends on its ability to enforce rulings despite rising global tariffs.
What Does This Tariff Standoff Mean for the Future?
India’s tariff retaliation isn’t just a reactive measure—it’s a strategic recalibration in a world tilting toward protectionism. With billions at stake and global trade growth slowing, how nations handle tariffs today will shape the economic order of tomorrow.
We have covered earlier US-China Truce on Tariff, the recent India-Pakistan conflict’s financial impact, and much more. Follow magnfi.in for more such content.
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