US' reciprocal tariffs on Indian exports will have a limited impact: SBI

The latest report by SBI's Economic Research Department suggests that the overall bilateral negotiations between India and US could provide further collateral benefit to India

India’s economy is unlikely to face significant impact from the United States’ reciprocal tariffs on its exports, the State Bank of India (SBI) said in a report released on Monday. Prepared by SBI’s Economic Research Department, the report estimated that the additional tariffs — ranging from 15 to 20 per cent — would limit the impact on exports to the US by only 3 to 3.5 per cent.

 

“We believe the flexibility shown by the leadership/ policy makers should reduce the overall incremental tariff levels close to 15-20 per cent and that would limit the impact on exports in the range of 3-3.5 per cent which again should be negated through higher export goals across both manufacturing and services fronts, as India has diversified its exports kitty, pitched value addition, exploring alternate areas and works on new routes that transcend from Europe to US via the Middle-East, redrawing new supply chain algorithms,” the report said.

 

The report by SBI’s Economic Research Department suggests that the overall bilateral negotiations can provide further collateral benefits to India. “While there is a lot of white noise and froth in the broader markets regarding the extent of impact of tariff on India under proposed ‘Fair & Reciprocal Plan’ that seeks to correct (from US perspectives) longstanding imbalances in international trade and ensure fairness across the board, we understand the overall bilateral negotiations provide a collateral benefit to India,” reads the report.

 

Need for conducive environment across major sectors

 

To tackle the global economic uncertainties and additional challenges like US’ tariffs on Indian exports, the report emphasises the need to create a mechanism in which cooperation between major sectors would be possible. With this approach, the broader economic challenges can be reduced further.

 

“Through fostering a conducive environment of cooperative dynamism across Defence, Energy Security, Innovations, Technology, Critical Minerals, Maritime Security, Investments and Higher Education to name a few, the largest and most vibrant democracy stands tall as a natural ally to the US in the Indian Ocean from a strategic, as also economical perspective,” it explained.

 

History of India’s tariffs on US and vice versa

 

Notably, the trend of imposing tariffs against each other shows that the US’ tariffs on India have been increased marginally while the increase of India’s tariff on the US is noticeable. This change indicates the evolving trade policies and economic priorities of both nations.

 

According to the report, the US tariff rate on Indian goods rose from 2.72 per cent in 2018 to 3.91 per cent in 2021, before experiencing a slight decrease to 3.83 per cent in 2022. Meanwhile, India's tariffs on US imports increased from 11.59 per cent in 2018 to 15.30 per cent in 2022.  US tariff rates on India   

Year	Tariff (in %)
2018	2.27
2019	3.84
2020	3.83
2021	3.91
2022	3.83

(Source: SBI)

  India’s tariff rates on US

 

Year	Tariff (in %)
2018	11.59
2019	13.42
2020	12.22
2021	12.52
2022	15.3

  (Source:SBI)

Understanding reciprocal tariff 

When two nations impose equivalent duties on each other’s imports and exports, it is called reciprocal tariffs. Designed to strengthen economic strength, this policy helps maximise revenue from global trade while promoting fairness and balance between trading partners. By ensuring a level playing field, reciprocal tariffs protect domestic interests while fostering sustainable international commerce.