'India is in Trump’s direct line of fire': What to expect as April 2 tariff deadline nears

Ahead of the April 2 tariff deadline, India and the US are actively negotiating a Bilateral Trade Agreement (BTA), the first tranche of which is likely to be finalised by the “fall of 2025”.

But the noise around implementation of tariffs on April 2 is only likely to get louder, said economists. India could potentially lose $6 billion or 0.16 per cent GDP in exports to the US at 10 per cent broad tariffs, with this rising to $31 billion at 25 per cent tariffs, Emkay's Lead Economist Madhavi Arora estimated.

India has taken proactive steps to ease its trade barriers and, by the time of the Modi-Trump meeting in February, India had already reduced duties on motorcycles, textiles and bourbon.

Nomura economists Sonal Varma and Aurodeep Nandi highlighted that India has refrained from retaliating against provocations from Trump, whether through rhetoric or actual tariff increases, even though it was affected by the US's global tariff hikes on steel and aluminum imports.

Nomura's economists emphasized that, unlike other major US trading partners, India has taken a more conciliatory approach toward the Trump presidency.

"While the BTA will likely take some time to fructify, we view it as an encouraging sign. It signals that, while India is in the direct line of fire on US reciprocal tariffs, the BTA could reduce the impact of any such tariffs on India. India is in Mr. Trump’s direct line of fire on reciprocal tariffs," Nomura economists said.

They pointed out that the country's weighted average effective tariff rate on US imports is significantly higher than the tariffs the US imposes on India. Additionally, India has high non-tariff barriers and applies a goods and services tax, fulfilling many of the criteria the US is likely to consider when determining reciprocal tariffs on each country.

Auto, gems & jewellery, apparel, pharma, electronics, and seafood are seen as the most vulnerable sectors or commodity groups to reciprocal tariffs. But most of these sectors have nuances, which make the threat far less than feared, Emkay Global said.

"Auto, pharma, and electronics are relatively well positioned, with sectoral nuances insulating them from majority of the tariff hit. Gems & jewellery and apparel are less protected and need specific negotiations," Emkay's economist said.

Speaking to reporters at the Oval Office, Trump recently suggested the reciprocal tariffs by US could be lower. “We may take less than what they’re charging because they’ve charged us so much,” he said, noting: “They charge us so much that I’m embarrassed to charge them what they’ve charged us.”

As per Nomura economists, the US-India BTA is likely to cover four areas. The first is the expansion of trade and market access.

India and the US have set an ambitious “Mission 500” goal, aiming to double bilateral trade to $500 billion by 2030 across goods and services. According to Nomura, quoting the Ministry of External Affairs, this goal will be achieved by boosting US exports of industrial goods to India and increasing Indian exports of labor-intensive manufactured products to the US. Both sides will also focus on enhancing trade in agricultural goods.

A key part of the agreement could involve increased market access for services, such as liberalizing work visa norms for India’s IT sector and opening India’s market to US-based tech and financial services firms.

Another area under consideration is tariff reduction. Nomura indicated that Indian authorities are looking to lower tariffs on US imports. India might offer tariff cuts across several product categories, including labor-intensive sectors like textiles and leather, agricultural products like pulses, automotive sectors like motorbikes and cars, energy products, and raw materials for manufacturing such as chemicals, industrial inputs, and IT products.

The third area of focus is reducing non-tariff barriers (NTBs). Although details on NTBs remain unclear, India could align its sanitary and phytosanitary measures more closely with international standards to facilitate the import of US agricultural products. Nomura suggests that India may also harmonize its quality control orders with global norms, reducing the need for testing and certification of US goods entering Indian markets. Additionally, streamlining regulatory approval processes could make it easier for US pharmaceutical products and medical devices to enter India.

Lastly, Nomura anticipates deeper supply-chain integration between the two countries, particularly in areas like semiconductors, critical minerals, advanced materials, and pharmaceuticals. This could involve expanding India's manufacturing capacity, including in the US, for active pharmaceutical ingredients for critical medicines.

What's ahead 

US Treasury Secretary Scott Bessent expressed optimism in a recent Fox News interview, suggesting that some tariffs might be avoided on April 2, thanks to pre-negotiated deals or reciprocal tariff numbers. India, with its high tariff and non-tariff barriers, could benefit from these negotiations, with the possibility that the impact of reciprocal tariffs may not be as severe as currently feared, either due to a pre-negotiated deal or India’s willingness to negotiate down these tariffs. As a result, India might fare better than other economies, Nomura said.

The US push to lower tariffs could also benefit India in a surprising way. Commerce Minister Piyush Goyal has emphasized that domestic industry should reduce its dependence on subsidies, high import duties, and protectionist measures, and instead focus on improving competitiveness. Increased competition could push Indian manufacturing toward greater innovation and efficiency.

India’s government is actively diversifying markets for Indian exporters. The country is aggressively pursuing trade agreements with several nations, including the UK, EU, New Zealand, Oman, and Qatar. Commerce Minister Goyal has also proposed a free trade agreement with the Mercosur bloc (Argentina, Brazil, Paraguay, and Uruguay). The recently presented Union Budget suggests a revamp of the Bilateral Investment Treaty framework to attract foreign investment and minimize arbitration disputes.

While the WTO’s “Most Favoured Nation” rule would require India to offer similar lower tariffs to other trading partners, if the Bilateral Trade Agreement (BTA) eliminates tariffs and trade restrictions on “substantially all trade” between India and the US, or if it serves as an interim step toward a Free Trade Agreement (FTA), then targeted tariff reductions for the US could be possible, as long as India complies with WTO principles.

"Given Trump’s love for a deal, India should pursue negotiations with the US by offering concessions in some key sectors, which would not hurt domestic industry, but are important politically/economically for Trump, in exchange for tariff mitigation elsewhere. We identify these ‘Easy Wins’ as: i) increase energy (crude oil, natural gas) imports from the US, ii) increase defense purchases and co-operation, iii) reduce tariffs on certain agri/food commodities, and iv) lower tariffs on foreign EVs," Emkay Global said.

In conclusion, while it may take time for the bilateral trade agreement between India and the US to materialize, the ongoing negotiations are seen as a promising development.