3/30/25, 12:14 PM UPSC Editorial Analysis: Impact of US Reciprocal Tariffs on Indian Manufacturing
UPSC Editorial Analysis: Impact of US Reciprocal
Tariffs on Indian Manufacturing
insightsonindia.com/2025/03/04/upsc-editorial-analysis-impact-of-us-reciprocal-tariffs-on-indian-
manufacturing/
Insights Editor March 4, 2025
General Studies-2; Topic: Effect of policies and politics of developed and
developing countries on India’s interests, Indian diaspora.
Introduction
Indian manufacturing faces a new challenge from US President Donald Trump’s
proposed reciprocal tariffs.
Despite efforts like ‘Make in India’, the manufacturing sector’s share in GDP
declined from 15.99% in 2014-15 to 15.83% in 2023-24, highlighting stagnation.
The US is India’s largest export partner, and these tariffs could have severe
economic consequences.
Understanding Reciprocal Tariffs and Their Impact on Indian Exports
Reciprocal tariffs are imposed when a country charges duties on US exports,
prompting the US to retaliate with the same amount of tariff on that country’s
goods.
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3/30/25, 12:14 PM UPSC Editorial Analysis: Impact of US Reciprocal Tariffs on Indian Manufacturing
While the exact calculation method remains unclear, past tariffs under Trump’s
presidency suggest high tariff rates targeting specific sectors.
The US administration’s tariff plan covers major Indian export industries:
Steel and Aluminium: Already hit by a 25% tariff on steel and aluminium.
Pharmaceuticals: India is the largest supplier of generic drugs to the US.
Textiles and Apparel: Competes with Bangladesh, Vietnam, and China.
Electronics: India’s growing electronics exports could lose market share.
Consequences of Reciprocal Tariffs:
Increased export costs → Reduced competitiveness.
Shrinking market share → Higher competition from other countries.
Supply chain disruptions → Higher input costs for industries like
automobiles.
Job losses → Manufacturing slowdown, impacting employment.
Industry-Wise Impact of US Tariffs
Steel and Aluminium Industry
Effect: Higher costs make Indian exports uncompetitive in the US, leading to:
Declining orders and lower revenue.
Job cuts in steel plants and allied industries.
Downstream impact on industries using metals (automobiles, machinery).
Pharmaceutical Sector
Higher tariffs mean:
Increased production costs → Lower profit margins.
Shift in sourcing → US firms may turn to China or Mexico.
Slower growth in India’s pharma exports.
Textile Industry
India’s textile and apparel exports to the US could see:
Rising costs making Indian garments less competitive.
Loss of orders to Vietnam and Bangladesh, which enjoy better trade
agreements.
Employment crisis in the textile hubs of Gujarat, Tamil Nadu, and West
Bengal.
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3/30/25, 12:14 PM UPSC Editorial Analysis: Impact of US Reciprocal Tariffs on Indian Manufacturing
Electronics Industry
India has been focusing on electronics manufacturing, but:
Higher tariffs on electronic exports will discourage investments.
US companies may prefer China, Taiwan, or Vietnam over India.
Smartphone and semiconductor exports could be hit.
Impact on India’s Domestic Economy
Declining Export Revenues
Trade imbalance may widen due to reduced exports to the US.
Lower foreign exchange earnings → Increased pressure on currency
value.
Reduced Investments in Manufacturing
Uncertainty in trade policies discourages investment in export-oriented
industries.
FDI in manufacturing may slow down as companies fear trade restrictions.
Employment Crisis in Key Sectors
Manufacturing is labour-intensive, and export-oriented industries
employ millions.
Job losses could occur in:
Steel plants (Odisha, Jharkhand).
Textile hubs (Tamil Nadu, Gujarat).
Pharma industries (Telangana, Maharashtra).
Electronics sector (Noida, Bengaluru).
Way Forward
Reducing dependence on the US by:
Strengthening trade ties with the EU, which is India’s second-largest
trade partner.
Expanding agreements with ASEAN nations for regional market access.
Exploring emerging markets in Africa and Latin America.
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3/30/25, 12:14 PM UPSC Editorial Analysis: Impact of US Reciprocal Tariffs on Indian Manufacturing
Atmanirbhar Bharat (Self-reliant India) should focus on:
Advanced manufacturing techniques to increase global
competitiveness.
Higher R&D investment in technology-driven industries.
Subsidies for domestic firms to absorb cost hikes.
Expedite trade deals with:
EU – Ongoing India-EU FTA negotiations should be fast-tracked.
UK, Australia, Canada – Potential export markets for textiles, electronics,
and pharma.
Government incentives to boost local manufacturing:
Higher tax exemptions to increase consumer purchasing power.
Lower interest rates for small and medium enterprises (SMEs).
Stronger support for MSMEs, which are major exporters.
Providing financial relief measures, such as:
Subsidized credit for export-oriented businesses.
Export incentive programs under Production Linked Incentive (PLI)
schemes.
Tax relief for industries facing tariff challenges.
Conclusion
Trump’s reciprocal tariffs pose a serious threat to India’s manufacturing and
exports.
With strategic economic planning, India can mitigate trade shocks and emerge
as a stronger global manufacturing hub.
The Make in India 2.0 strategy should focus on resilience, technology, and
diversification to position India for long-term growth in a volatile global trade
environment.
Practice Question:
Examine the impact of US reciprocal tariffs on India’s export-oriented industries.
Suggest policy measures to counteract the negative consequences while
maintaining trade relations with the US. (250 words)
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