Why is India seeking to impose retaliatory tariffs on U.S.? | Explained

India contended about reserving the right to “suspend concessions or other obligations” that are “substantially equivalent to the adverse effects of the measure to India’s trade”, and that they intend to pursue the same by suspending concessions or other obligations. File
| Photo Credit: Reuters

The story so far:

Retaliating to the U.S. imposing 25% tariffs on imports of steel and aluminium earlier in March, India notified the World Trade Organisation (WTO) last week of its intent to place tariffs on $7.6 billion worth of imports from the country across the Atlantic. New Delhi held that the measure estimated to rack up $1.91 billion in duties would mirror the impact on their exports of steel and aluminium because of Washington’s tariffs. The development transpired days before the two countries informed about having expedited progress towards the first tranche of the bilateral trade agreement. The reciprocative measures come into effect thirty days from the date of notification, that is, May 9.

What all has happened in the recent past?

Into his second term, U.S. President Donald Trump this March reinstated 25% tariffs on all steel and aluminium being imported into the country. This was alongside eliminating all country and product-specific exemptions. He argued the move meant to protect domestic industries being reportedly “harmed by unfair trade practices and global excess capacity”. The 45th U.S. President endowing paramount focus on pursuing protectionist policies is widely acknowledged and not anything new. Mr. Trump had earlier instituted tariffs on the two commodities back in March 2018 during his first term. Steel was subject to 25% tariffs whilst aluminium 10%.

India first moved for retaliatory measures only in June 2019 when Washington removed it from their Generalised System of Preferences (GSP), citing unresolved issues. For perspective, GSPs are unilateral, non-reciprocal and non-discriminatory benefits extended by economically better economies to developing countries. Disapproving of the exclusion as “unfortunate”, India imposed retaliatory tariffs on 28 items of import (from the U.S.) as apples, walnuts and almonds, among others.

Later in 2020, albeit unrelated to the prior development, U.S. expanded the scope of the regime to also cover derivatives of the two metals.

The trade-related headwinds only sought to ease when Democrat leader Joe Biden assumed the North American country’s top administrative office in 2021. The formal steps were carved later during Indian Prime Minister Narendra Modi’s visit to the U.S. in September 2023. Reciprocating India’s gesture to withdraw the duties imposed in 2019, the U.S. Dept of Commerce committed to ensuring greater market access to Indian steel and aluminium. Things however, reverted to the 2019 order with Mr. Trump’s return to the Oval Office this year. This time around, both aluminium and steel find themselves subjected to the same rate, that is, 25%.

What all issues have India highlighted?

The central point of contention is the nature of the American tariffs. The United States has maintained at the WTO that its measures are not safeguards but intended to pursue a “national security statute”. It argues that the tariff regime is in accordance with the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Safeguards (AoS), citing the redeemable exception for pursuing security interests in the covenant. However, as indicated in a WTO communication, the European Union, India, China and the U.K. disagree with the “characterisation of these measures, asserting that they are safeguards”.

Further, India in its notice also stated that the mandatory consultations prior to attaining an acceptance of AoS had not taken place. Thus, it contended about reserving the right to “suspend concessions or other obligations” that are “substantially equivalent to the adverse effects of the measure to India’s trade”. India has indicated they intend to pursue the same by suspending concessions or other obligations.

How have our industries reacted to such developments?

The tariff revisions in 2018 had prompted concerns about Indian exports becoming “costlier and uncompetitive” in the U.S. market. Back then, the trade dynamics pitted India against countries accorded an exemption to the paradigm. The present regime, however, does not accord any exemption.

Back then, according to data from the Joint Plant Committee tabled in parliament, finished steel exports to the U.S. declined 48.4% in FY 2019-20 and 46.7% in FY 2020-21. Furthermore, in response to a question on the same subject in February 2020, Commerce Minister Piyush Goyal told the house that the share of the U.S. in India’s steel exports came down to 2.5% in 2018-19 from 3.3% in 2017-18.

In the now concluded financial year 2024-25, provisional data indicated exports having increased 44.21% until February compared to a decline of 42.3% in FY 2023-24.

Though the impact of the latest set of measures is yet to be ascertained, steel manufacturers have sought caution. In an investor call this February, the Steel Authority of India Limited (SAIL) held that the U.S.’ protectionist measures have raised concern among producers globally about “the potential retaliatory measures and (its) impact on the global trade pattern”. “The imposition of tariffs by the U.S. has also led to increased volatility in the global market. While U.S. steel market stock has surged in anticipation of gaining a competitive advantage, global producers are experiencing decline,” it observed.

Poignant to note, however, is thatthe protectionist policy of 2018 ironically did not cause much enthusiasm in Washington as well. An analysis by the U.S.’ Federal Reserve Board in December 2019 concluded the regime to have given a “small boost” to employment in the realm of manufacturing which was although offset by “larger drags” of rising input costs and retaliatory tariffs. Additionally, it attributed the increase in prices (for producers) to rising input costs.

What broader implications are we looking at?

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), held that India’s latest WTO action could potentially cast a shadow over negotiations. He added that notwithstanding the same India’s “calibrated, rules-based approach” contrasts with the U.S.’ “unilateralism”, thus, positioning India as a “staunch defender of multilateral trade norms”. He further added that the move also indicated New Delhi’s tougher stance, especially in “politically sensitive sectors” as steel and aluminium, that aligned with its Make in India industrial strategy.

Naveen Pant, Head of the Secretariat at the Aluminium Secondary Manufacturers Association (ASMA), told The Hindu that the step was necessary to protect the interests of the domestic industries. He further stated that being at par on the negotiation table would also help soften the impact of tariffs on steel and aluminium. “Earlier, they also had some arrangement through Mutually Agreed Solution (MAS) through which they got their agricultural products exempted in return for the exclusion of duty on steel and aluminium,” he explained.

What happens next, though, according to Mr. Srivastava, would depend on Washington’s response. He observes that, should the U.S. engage in consultations or withdraw the contested measures, a solution could be attained. Failing which, India’s proposed reciprocal tariffs take effect in early June. “Either way, India’s move reflects a broader shift: a willingness to assert itself within global trade rules to protect its economic interests,” he argues.