When America Uses Tariffs, India Feels Heat

• If a country buys products from another country, it may charge extra money (a tariff) on those products.
• This makes imported goods more expensive compared to local goods.

Purpose of Tariff:

1. Protect local industries – By making imports costlier, domestic producers get a price advantage.
2. Generate revenue – The government earns money through these taxes.
3. Trade policy tool – Sometimes tariffs are used in trade wars or negotiations between countries.

Why US Impose Tariff
The USA charges tariffs not just for money, but mainly as a strategic economic and political tool. Here’s the logic behind it:

1. Protect American Industries & Jobs

• If cheap goods flood in from abroad (say, steel from China), US companies may struggle to compete.
• By adding tariffs, foreign goods become more expensive, so Americans are more likely to buy Made in USA products.
• This protects local factories and jobs.

2. Reduce Trade Deficit

• The US often imports more than it exports.
• By imposing tariffs, the government tries to cut imports and encourage more domestic production.

Example: Tariffs on Chinese goods during the trade war aimed to balance the huge US-China trade gap.

3. Pressure Other Countries (Trade Negotiations)

• Tariffs are used like a bargaining tool.
• The US might impose tariffs to push another country to open its markets, stop unfair practices, or sign a better trade deal.

4. National Security Reasons

• Some industries (like steel, semiconductors, defense equipment) are critical for national security.
• Tariffs protect these sectors from relying too much on foreign suppliers.

5. Political Reasons

• Sometimes tariffs are used to appeal to local voters (especially workers in manufacturing-heavy states).
• It shows the government is taking action against "unfair trade."

Simple Example: If the US puts a 25% tariff on imported cars, then a $20,000 car from Japan now costs $25,000 in the US. This makes American-made cars more attractive in price, boosting local automakers like Ford or GM.

Indian Exports Become More Expensive in US

• If the US puts tariffs on Indian goods (like textiles, steel, IT hardware, or pharma), American buyers have to pay more.
• This reduces demand for Indian products, hurting exporters and Indian manufacturers.

Example: When the US ended India’s GSP (Generalised System of Preferences) scheme in 2019, tariffs went up on $6B worth of Indian goods like textiles, auto parts, and farm products.

Competitive Pressure on Indian Companies

• Indian goods may become less competitive compared to countries that have free trade deals with the US (like Mexico under USMCA).
  Example: If India’s leather goods face a 10% tariff but Vietnam’s don’t, US buyers may prefer Vietnam.

Impact on Specific Sectors

• Steel & Aluminum → US imposed tariffs citing national security. Indian steel exports fell.
• IT Services → Less directly tariffed, but trade tensions create visa restrictions and outsourcing barriers.
• Pharma → India is a big supplier of generic drugs; tariffs or regulatory barriers could raise costs in the US.

Ripple Effect on Indian Banking & Economy

• Lower exports = less foreign currency earnings = pressure on Indian trade balance.
• Export-dependent companies see falling profits, affecting loans and repayment to Indian banks.
• Stock markets react negatively if tariffs hit major export industries.

Opportunity Angle

• Sometimes US tariffs on China help India.
  Example: When the US imposed heavy tariffs on Chinese goods, American buyers started sourcing textiles, chemicals, and electronics from India.

In short
The US logic of tariffs for protecting jobs, reducing deficit, pressuring countries can hurt India’s exports, make Indian goods less competitive, and indirectly stress banking & jobs. But it can also open doors for India when the US targets other big exporters like China.

[Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the editorial stance of this publication.]