Since taking office as President on January 20, Donald Trump has made key decisions regarding issues such as immigration and tariffs. Just 20 days after his election victory, Trump announced that he would impose a 25% tariff on Canada and Mexico and a 10% on China as soon as he took the oath of office. The announcement alone led to a sharp decline in the currencies of these nations.
After taking office on January 20, he followed through, issuing executive orders to impose these taxes. However, he postponed the tariffs on Canada and Mexico for 30 days, contingent upon these countries meeting certain conditions. The taxes on China, however, went into effect on February 4.
In his second term, president remains fiercely committed to taxes, using them as a tool to force other nations to comply with his demands. Countries such as India, Brazil, and the European Union are also on the receiving end of Trump’s tariff threats.
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What Is a Tariff and Why Are Countries Worried About It?
A tariff is essentially a tax levied on goods imported from other countries. This tax is paid by the company importing the goods. For example, if an American company ships a good worth ₹10 lakh to India and India imposes a 15% tariff, the importing company will have to pay ₹2.15 lakh in tax on each car. Consequently, the good will cost ₹12.15 lakh in India.
Why Is Trump So Aggressive About Tariffs?
The primary reason he is so aggressive about this tax is to reduce the U.S. trade deficit. He is taking these steps to protect American companies and address the imbalance in global trade. In 2023, the U.S. incurred a trade deficit of 30.2% with China, 19% with Mexico, and 14.5% with Canada. Combined, these three countries were responsible for a deficit of $670 billion (around ₹40 lakh crore) for the U.S. in 2023. That’s why Trump targeted these nations first.
What Are the Benefits of Tariffs?
Tariffs offer two major benefits: first, they generate revenue for the government, and second, they protect domestic companies by making foreign competitors more expensive. For instance, if Chinese companies manufacture mobile phones and attempt to sell them in the U.S. at a cheaper price, American companies would face competition. This could negatively impact both local businesses and government revenue.
By imposing it, the government ensures that Chinese phones become more expensive, allowing American companies to better compete in the market.
India: A Country That Has Imposed High Tariffs on U.S. Products
India is one of the countries that imposes the highest tariffs on U.S. products. According to an Indian Express report, India’s average tariff rate stood at 125% until the 1990-91 period. Post-liberalization, this rate gradually decreased.
After Trump’s re-election, the Indian government adjusted tariff rates. According to The Hindu, India removed the 150%, 125%, and 100% tariff rates. The highest tariff rate now stands at 70%. For example, the tariff on luxury cars, which was previously 125%, is now reduced to 70%. Consequently, India’s average rate dropped to 10.65% in 2025.
India’s rates are still among the highest globally, although most nations impose tariffs at different rates.
How Does the Tariff War Affect India?
Experts suggest that tariffs imposed on Chinese products will boost the sale of Indian goods in the U.S. According to an analysis by Oxford Economics, during Trump’s first term when the U.S. and China were engaged in a tariff war, India was among the countries that benefited the most from the shift in trade patterns.
“Taxes imposed by the U.S. have affected China and its trading partners like South Korea and Japan. However, India stands to gain because it will face less competition from Chinese companies in the U.S. market. Additionally, companies that have factories in both China and India will begin placing more orders in India.”
- India’s Strategy to Stay Safe from Trump’s Actions
Since Trump took office, the U.S. has imposed tariffs on Canada, Mexico, Colombia, and China. India, however, has largely avoided these taxes. To circumvent potential tariffs from Trump, India has started reducing tariffs on certain U.S. goods.
In the Union Budget presented on February 1, India announced reductions in taxes on items such as motorcycles with engines below 1600cc, satellite ground installations, and synthetic flavoring agents imported from the U.S.
What is the Reciprocal Tariff Plan and How Might It Affect India?
Trump introduced the concept of a reciprocal tariff, which operates on a “tit-for-tat” basis. Under this plan, if a country imposes a tax on U.S. goods, the U.S. will impose an equivalent tariff on that country’s goods. Trump indicated that the reciprocal tariff policy would be announced on Tuesday or Wednesday and would be implemented immediately.
If this tax increase, Indian products will become more expensive in the U.S. This could reduce demand among American consumers, affecting India’s export performance.
Will India Grant Concessions for Tesla’s Entry in Exchange for Reduced Tariffs?
Elon Musk initiated the process of registering Tesla in Bengaluru in January 2021, with plans to enter the Indian market by October 2021. However, these plans did not materialize, and Trump later remarked that high tariff duties were the reason behind Tesla’s failure to enter India.
In 2022, Tesla again expressed interest in entering India, but talks between the company and the Indian government broke down. Tesla had requested that the import duty on fully assembled vehicles be reduced from 100% to 40%, as they wanted their electric vehicles to be categorized differently from luxury vehicles. However, the Indian government rejected this demand, stating that there were no plans to reduce duties on electric vehicles imported from other countries.
