- 10% tariff to be replaced by country-specific duties
- New policy aims to rebalance US trade
- More trade barriers, supply disruptions on anvil?
President Donald Trump of the US unleashed yet another slew of measures “to make America wealthy again”. On 2 April, the US announced a major new reciprocal tariff policy designed to reduce the US trade deficit and boost domestic manufacturing. The plan includes a universal 10% tariff on all imported goods, effective 5 April, 2025. It will be replaced by the country-specific tariffs taking effect on 9 April. Over 60 countries will be affected by the measures, including India.
Certain goods are exempt from these base line and country specific tariffs. These include aluminum, steel, and auto products already subject to a 25% tariff under Section 232 from 12 March 2025. That apart, critical items such as pharmaceuticals, semiconductors, copper, and energy products; and imports from Canada and Mexico that qualify under the USMCA will be exempted. Additionally, goods with at least 20% US content will only be taxed on the portion not produced in the US.
How tariffs will be calculated
Under the new US reciprocal tariff adjusted policy, how much a country pays in tariffs will depend on the type of goods being exported and their origin. The policy is structured into three main categories.
1) First, there are goods that will face zero tariffs. These include essential and strategic items such as pharmaceuticals, semiconductors, copper, and energy products like oil, gas, coal, and LNG. Also exempt are goods from Canada and Mexico that qualify under the USMCA trade agreement, products that have at least 20% US-made content (only the non-US portion will be taxed), and low-value shipments under $800, which mainly covers e-commerce orders. These items can continue to enter the US without any additional tariff burden.
2) Secondly, there is a 25% tariff on key industrial sectors, including aluminium, steel, automobiles, and auto parts. This tariff applies broadly to most countries and is aimed at protecting and rebuilding critical US manufacturing capabilities.
3) For most other goods, there is now a two-layered tariff system. All imports are first subject to a 10% baseline tariff starting 5 April, 2025. Then, beginning 9 April, 2025, certain countries will face country-specific tariffs. Country-specific tariffs will replace base line tariffs.
For example, starting 9 April, goods from India could be subject to tariffs as high as 27% in total. However, goods such as pharmaceuticals, semiconductors, copper, and energy products remain exempt from any new tariffs.
Overall, the new policy imposes heavier duties on imports in order to rebalance trade, promote US manufacturing, and reduce reliance on foreign supply chains. The actual tariff a country faces depends on what it is exporting and how its trade practices align with US economic and national security interests.
What is a reciprocal tariff?
A reciprocal tariff is a tax or trade barrier imposed by one country in response to similar measures taken by another. The purpose of reciprocal tariffs is to maintain a trade balance between nations. When one country increases tariffs on imports from another, the affected country often retaliates by imposing its own tariffs on goods from the first country. This strategy aims to protect domestic industries, safeguard jobs, and address trade imbalances.
China faces a 25% tariff on steel, aluminium, autos, and auto parts. There are no tariffs on pharmaceuticals, semiconductors, copper, or energy products. For remaining products, the US has applied a reciprocal tariff of 34%, with an additional 20% already announced by the US. The total U.S. tariffs on such goods from China amount to 54%.
Reciprocal tariff on key countries:
- The EU27: 20%,
- Vietnam: 46%.
- Taiwan (China): 32%.
- Japan: 24%.
- South Korea: 25%.
- India: 27%
Tariff timeline
2018: It may be recalled that the US, in 2018, under Section 232, had slapped a 10% and 25% duty on steel and aluminium coming in from all countries except Canada, Mexico, Australia, Argentina, Brazil, EU-27, UK, Japan, Korea and Ukraine.
Under Section 301 (Distorting Trade Practices), the US slapped 10-100% tariffs on all products from China.
2025: However, from 12 March, President Trump, taking Section 232 further, converted the 10% and 25% into a universal 25% duty on steel and aluminium, with all countries coming under its ambit.
From 2 February 2025, the US slapped an additional 10% duty on all products from China, increasing the quantum to 20% from 4 March.
On 4 March 2025, working under the International Emergency Economic Powers Act (IEEPA), which bestows the President with powers to respond to threats to national security, foreign policy or economy, Trump slapped a 25% duty on all products excluding energy and potash at 10% from Canada and all products, excluding potash at 10% from Mexico.
He also imposed an auto specific 25% tariff from 2 April, 2025, on all countries, plus a 25% on auto components from 2 May, 2025 on all countries except the USMCA (US, Mexico and Canada).
On 2 April, the reciprocal tariffs were announced.
Sources told BigMint: “The duty assessment by the US authorities is grossly exaggerated and incorrect and needs to be reviewed.”
Outlook
Reciprocal tariffs can trigger a cycle of escalating trade barriers, increasing the risk of a trade war that can harm both economies involved. These tariffs can disrupt global supply chains, and drive up costs for end-users. The tariffs will impact those countries that sell more goods to the US than they buy.
This tough US stance could also lead to other countries lowering their tariffs.
“China’s abnormally high tariffs are bound to affect exports of its engineering goods to the US. This can unfold export opportunities to other countries, including India,” observed a source.
Many feel the reciprocal tariffs may lead to rising inflation and trade disruptions.
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