What are US reciprocal tariffs and why do they matter?

On April 2, US President Donald Trump announced reciprocal tariffs on most countries with which the US had a trade deficit. He said these tariffs were in response to the tariff and non-tariff barriers imposed on American products.

These import tariffs, largely linked to the level of America’s trade deficit with a particular country, ranged between 10 per cent and 50 per cent. India got a 26 per cent tariff announced on its goods. These tariffs were envisaged over and above the regular US import levies (MFN tariffs), increasing costs.

So, for instance, if the US import tariff on a particular garment is 5 per cent, the reciprocal tariff would be added to it making the end product more expensive.

What happened to the reciprocal tariffs after they were announced and why is July 9 significant?

The full reciprocal tariffs were to come into force on April 9. However, on the day of the tariff imposition, Trump announced a 90-day pause on it till July 9, blaming “yippie” critics and a “queasy” bond market for shifting of the deadline. A 10 per cent baseline levy was however imposed on all US imports.

Trump said that if countries managed to negotiate trade deals with the US in the 90-day period, they would be spared the reciprocal tariffs on July 9.

How was India affected by the reciprocal tariffs?

Trump announced a 26 per cent reciprocal tariff on all Indian exports to the US. Of this, a 10 per cent baseline tariff was imposed in April, while the remaining 16 per cent got suspended till July 9.

Indian exporters were greatly rattled by the 10 per cent baseline as they faced the problem of sharing the burden of increased tariffs with the importers and buyers. There was also uncertainty about what would happen after the tariff pause ended.

What did India do to handle the reciprocal tariffs?

India was already discussing a bilateral trade agreement with the US before the April 2 announcement of reciprocal tariffs. When the tariffs were announced and then paused till July 9, India set out to strike an interim deal with the US within the time-frame to avoid reimposition of the levies.

Negotiations went on between the two sides for the past few months,  but US demands in sensitive areas such as agriculture and dairy were amongst the reasons why a pact was difficult to seal.

Did the US manage to get trade deals with other countries?

The US has had not much success with trade deals in the tariff pause period. It struck a limited deal with the UK and another one with Vietnam, the finer details of which are yet to be thrashed out.

While Trump has claimed that the US has a deal with China as well, it is only a framework with not many details. It is also in talks with the EU, and there is optimism on the US side on a possible deal with both the EU and India.

With the 90-day pause period on the reciprocal tariffs about to end on July 9, what is the status of the levies?

On Monday, Trump sent out letters to 14 countries with which the US is not engaged in trade talks at the moment specifying the tariffs they would now face in the absence of a deal. The new tariffs are more or less similar to the reciprocal tariffs announced earlier. In a few cases, they are somewhat lower. 

Interestingly, the tariffs are to be imposed from August 1 and not July 9. So, effectively, the tariff deadline has been postponed. Importantly, in his letters, Trump indicated that he was open to negotiations and adjust the tariffs mentioned in case the countries’ wished to open their “heretofore closed trading markets” to the US.

So, is August 1 the new tariff deadline now?

The US has already postponed imposition of tariffs to August 1 for some countries with which no deals are in the immediate offing. These countries include Japan, South Korea, Bangladesh, Myanmar, Laos, Thailand, Cambodia, Malaysia, Kazakhstan, Serbia, Tunisia and South Africa. 

The new deadline is clearly mentioned in their tariff letters. It can be logically concluded that those countries that have not yet got the letters, as Trump still hopes to strike deals with them, will not get tariffs slapped on them on July 9 in case the deal is not struck. They will at least have time till August 1, like the others, before tariffs are imposed. So yes, one might conclude that August 1 is the new tariff deadline.

What is the status of India’s engagement with the US on the tariffs?

Trump said on Monday that he still hopes to get a deal with India very soon. India already made significant offers to the US, in line with the free trade agreements with other countries.

But it wants its sensitivities, including in agriculture and dairy, to be protected. It also wants preferential market access in the areas of its interest, such as labour intensive products, that would give it an edge over competitors. US has to keep these in mind.

What happens to India in the absence of a deal by July 9?

It seems likely that in the absence of a deal by July 9, India will be treated the same as the other countries that don’t have a deal and have got tariff letters instead. Most of them have got new tariffs in line with the reciprocal tariffs of April 2 while for a couple the new tariffs are lower.

India too may be assigned its share of tariffs, which could be aligned to the 26 per cent reciprocal tariffs announced in April. And like the other countries, the new date for imposition of the tariffs would be August 1. So, it would get time at lease till then to negotiate more on the trade deal.

Published on July 8, 2025