Trade arithmetic exposed: How India, US are calculating tariffs

Barclay's Chief India Economist Aastha Gudwani has contrasted Indo-US trade in detail and suggests that India may adopt a cluster-wise approach in the talks.

(PTI)

 Donald Trump makes retaliatory tariffs on April 2, Indo-US trade talks continue to go on. Will India significantly reduce its tariffs to meet Donald Trump's criticism of Indian tariffs being excessive? Will the cuts be commodity specific or across the board? A report issued by Barclay's Chief India Economist Aastha Gudwani has broken down Indo-US trade in depth and says that India may adopt a cluster-wise strategy for the negotiations.

Hidden Equation Behind India-US Tariff Moves

US Bureau of Economic Analysis (BES) data indicates that US trade deficit with India was increasing steadily from 1999 to early 2010s after which it has stabilised. India's proportion in US total goods and services trade deficit rose from below 2% during the 2000s to a high of over 6% in early 2010s but has stabilised at approximately 5% in the 2020s. Indeed, India remains a minor player as regards US's total trade deficit. US's trade deficit of $ 46.1 billion with India accounted for only 5.02% of its total trade deficit in 2024. However, India levies one of the highest import taxes on US goods even though it faces lower import taxes in the US.

India-US Tariff Playbook Unlocked

The report by Barclays reveals that in relation to other South East Asian countries, India levies much steeper tariffs on US imports. Not only this, India's tariff on US imports is much higher than US tariffs on Indian exports. The difference is far less for Thailand, Philippines, Taiwan, Vietnam and other nations.
The paper employs this information combined with India's bargaining power – depending on whether India is a significant exporter of such products or not – to put India's exports into four types ranging from India not having to bargain from the US to having difficulty bargaining. For those products where India is the largest exporter to the US, India might not have to negotiate at all and would possess the highest bargaining power.

Story Behind India-US Tariff Calculations

Products falling in the 'relatively easy to negotiate' category are those where India is the second largest exporter, where India retains relatively high bargaining power. Goods for which India is the third largest exporter are relatively challenging to negotiate and India may have poor bargaining power. The last group is one for which India will find it 'difficult to negotiate' wherein India is not in the first three suppliers to the US. These are the goods which stand the highest chances of being slapped with reciprocal tariffs, according to the report.