By Vinod Popat
What India Has Done
In early July 2025, India escalated its response to U.S. import duties under new World Trade Organization (WTO) procedures:
1. Steel & Aluminium Safeguards – India proposed retaliatory tariffs on U.S. exports such as steel and aluminium. The move followed U.S. “safeguard” duties imposed earlier this year
Automotive Tariffs – On July 4, the Indian government formally notified the WTO of retaliatory duties targeting U.S. autos and auto components—valued at $2.89 billion of exports and equivalent to $725 million in duties
These measures come amid ongoing trade talks aiming to avert broader escalation before a looming U.S. deadline of August 1
Why This Matters
• Trump’s “Liberation Day” Tariffs: In April 2025, President Trump imposed a 10% baseline tariff on most imports, with further country-specific “reciprocal” rates based on their trade barriers. India faced a 26–27% levy from April 9 onwards .
Global Ripple Effects: Economists warned these sweeping tariffs could trigger inflation, disrupt supply chains, and even risk a global recession
Market Response: Global markets fell sharply following the April announcement, as uncertainty gripped invest
Effects on U.S.–India Relations
• Trade Negotiations: Despite India’s WTO countermeasures, both Delhi and Washington are continuing trade negotiations. India has resisted deeper liberalisation in dairy and agriculture, key sticking points
Diplomatic Tightrope: India avoids confrontation, positioning its measures as procedural under WTO rules while still engaging diplomatically
Strategic Positioning: India’s stance—balancing formal WTO retaliation with active negotiations—is viewed as savvy, helping it sidestep some of the harshest impacts of U.S. threats
Economic & Political Impacts
• For India: Retaliatory duties may shield domestic industries from disruption, although the ultimate impact on growth and exports depends on how talks conclude. Negotiators aim to conclude a phase-one deal by fall
For U.S. Consumers & Businesses: Trump’s tariffs have already triggered inflation, increased costs, and market volatility. Indian materials and components now face closer scrutiny
Larger Trade War Risk: Protectionist moves from both sides risk broadening a trade war that may adversely impact global investment, supply chains, and consumer prices.
Outlook
• Key Negotiation Deadlines: India and the U.S. are operating against two timelines—Trump’s August 1 tariff deadline and WTO dispute resolution timelines.
• Possible Resolution: If negotiations reach an agreement before August 1, both nations could agree to suspend reciprocal tariffs, concluding a first-phase deal
Lingering Risks: Even if a deal is struck, deeper sectors like dairy and agriculture may remain contentious, with tariff retaliation still possible via WTO mechanisms
Final Take
India’s retaliatory tariffs mark a strategic escalation—but one calculated under WTO rules and balanced with diplomatic outreach. While Trump’s aggressive trade agenda threatens to escalate tensions, India appears to be leveraging both retaliatory measures and negotiation to protect its interests—and potentially pressure the U.S. toward a compromise.
