Liberation Day On April 2: How Trump's So-Called Reciprocal Tariffs Will Impact India?

Liberation Day: US' 47th President Donald Trump has announced Wednesday, April 2nd, as the 'Liberation Day' for the world's largest economy. The aim behind Liberation Day is to reduce the USA's dependency on foreign products and drive its domestic manpower, manufacturing, and economic growth. Trump stayed rooted in his plan of sparing no country from his tariffs.

The White House confirmed that Trump will make a significant tariff announcement on April 2, with immediate effect. It needs to be noted that Trump had been crying wolf way before he took the reins of the White House in late January, but over time, he also announced a few exceptions and concessions for the same countries he swore to make pay the US' intense tariffs.

Trump has blamed countries like India, the European Union, Japan, Canada, and many more. He even called India a tariff king. However, Trump has signaled for countries to redeem themselves from his tariff plans.

For instance, right after taking the White House office, Trump resumed trade with China, but also added to the feud between Canada and Mexico. He imposed a 25% tariff on most Canadian and Mexican goods but later announced exemptions on all USMCA-compliant goods.

Further, Trump announced a 25% tariff on auto and automobile component products from foreign companies but once again exempted USMCA-compliant vehicles.

What Is Expected On Liberation Day?

Trump is expected to announce a host of reciprocal tariff policies on April 2. Karoline Leavitt, the White House press secretary, explained that reciprocity is needed on countries who have imposed high tariffs on US goods. She listed out that India has imposed 100% tariffs on American agricultural products, while 50% tariffs are levied by the EU on American dairy products; another Asian giant, Japan, levies a whopping 700% tariffs on American rice, and Canada has imposed about a 300% tariff on American cheese. Hence, the announcement of reciprocal tariffs.

These tariffs are expected to come into effect immediately. But will reportedly follow a fresh batch of 25% tariff on imported auto products on April 3.

How India Will Be Impacted?

In its latest report, Fitch expects the U.S. administration's reciprocal tariff review to result in higher tariff rates, according to a new report. There is a high risk that tariffs ensnare many U.S. trading partners, particularly those emerging market economies where the tariff rates faced by U.S. exporters exceed those charged on US imports from these countries.

Among the trade partners are Brazil, India, Thailand, Malaysia, South Africa, Turkey and, on a simple average tariff basis, Vietnam and Indonesia, impose notably higher tariffs on exports from the U.S. relative to tariffs imposed by the U.S. on imports from these countries, Fitch added.

Meanwhile, analysts at Emkay Global said, "While the nature of reciprocal tariff implementation is unclear, we believe a broad country-level tariff by the US is the most likely scenario, given complications around sector/commodity-level tariffs."

Emkay's note added, "While India could be among the worst hit nations as per broad reciprocal differentials, we establish that the key susceptible sectors (Auto, Pharma, Electronics) are far better placed than feared, whereas Apparel and Gems/Jewellery are the most exposed. We also identify a few 'easy wins' to offer in exchange for tariff mitigation elsewhere (higher energy/defense imports, lower foreign EV tariffs etc)."

Furthermore, Emkay added, "India will need to strive harder to gain opportunities from a global tariff war. Having progressed marginally in high-skill product value chains, India has captured only a small share of the low-skill pie that China vacated post-Covid. Tariffs on Mexico and Canada offer some potential opportunities, but gains (if any) will take time to accrue, given the highly integrated North American supply chains."

The brokerage expects India would potentially lose ~USD6bn (0.16% GDP) in exports to the US (at 10% broad tariffs), with this rising to ~USD31bn at
25% tariffs.

Explaining about Trump's 25% tariff on imported auto products, Naveen KR, smallcase manager and Senior Director, Windmill Capital highlighted that India exported approximately 6.7 lakh vehicles in 2024, with exports now accounting for 15-16% of total domestic automotive sales. Automakers like Maruti Suzuki and Kia Motors are increasingly focusing on exports as a key growth strategy. While earlier shipments were largely directed at Africa, Latin America, and South Asia, Indian-made vehicles are now reaching developed markets like Japan, highlighting their rising global competitiveness. When it comes to the United States specifically, the export exposure remains relatively limited. According to the United Nations COMTRADE database, India exported motor cars and vehicles worth just $37.11 million to the US in 2023. Given this small share, the direct impact of US tariff hikes on Indian automakers is expected to be limited.

KR added, "Moreover, India's growing trade partnerships - including recent FTAs with Australia, the UAE, and the European Free Trade Association (EFTA) - are opening up new markets and are expected to further bolster the country's automotive export momentum. The new US tariffs could particularly affect foreign luxury carmakers like Tata Motors owned Jaguar Land Rover (JLR)."

Lastly, KR added the 25% US import duty could pose a threat by making Indian auto ancillary exports less price-competitive, particularly for Tier-1 and Tier-2 suppliers that rely heavily on the US for revenues. Nevertheless, India's relatively low import duty structure - ranging between 5% and 15% for auto components - allows for greater price flexibility and resilience in a retaliatory tariff scenario. Indian suppliers could still remain cost-effective compared to countries like Mexico or China, where cost structures are often higher or less predictable due to geopolitical factors.