Let’s Look at Tariffs Through the Indian Looking Glass

The Trump ‘reciprocal’ tariffs are still taking most of the news – but they’re not as confusing or frightening as they were a few weeks ago. In this post we look at a brief history of tariffs in India, the ‘real’ purpose of Tariffs and what all these Trump shenanigans mean for Tech India.

If you’re looking for the story of the Trump tariffs till date, CNN has a nice looking timeline. And I made a fun little IG reel / YT short about it which is why you should either follow me on Instagram or subscribe to my YouTube channel. 🫶🏼

Purpose of Tariffs

A tariff is basically a tax imposed by governments on imported goods to try and serve one or more of the following purposes:

• Protect Domestic Industries: By making imported goods more expensive, tariffs encourage consumers to buy locally produced alternatives, thus possibly shielding domestic manufacturers from foreign competition.
• Raise Government Revenue: Tariffs can generate income for governments, especially in countries where other forms of taxation are limited or less developed. Btw, some estimate that the Trump administration made over $21b in tariff revenue since Trump took office. Don’t cheer for your American friends though – the cost of these tariffs are passed on to the consumers.
• Correct Trade Imbalances: Tariffs can be used to reduce trade deficits by discouraging imports and promoting domestic production. This one is a bit vague though, because trade deficit is the amount by which the value of imports exceed exports, and not sure if tariffs are included in the value calculation.
• Respond to Unfair Trade Practices: This is where it gets really political. Tariffs may be imposed as retaliation against countries that engage in practices such as dumping (selling goods below market value) or providing unfair subsidies to their exporters. I’m pretty sure the US Government officials have used the term ‘retaliatory tariffs’ at least once when referring to China.
• Protect National Interests and Security: Tariffs can be used to safeguard industries vital to national security or to exert political pressure on other countries for reasons not directly related to trade. Basically, Trump wants people to make deals with him and tell him he’s God.

Impact of Tariffs on Consumer Prices

Economists say – with logic and proof – that Tariffs generally lead to higher consumer prices. Here’s how:

• Direct Price Increases: When tariffs are imposed on imported goods, importers pay a tax, which raises the cost of bringing those goods into the country. Most businesses pass some or all of this increased cost on to consumers, resulting in higher prices for a wide range of products—from food and clothing to electronics and cars. In India, imported cars face tariffs as high as 70%.
• Hidden and Indirect Effects: Tariffs can also increase the cost of products made with imported components or raw materials. Since many goods are produced through complex global supply chains, even products assembled domestically may become more expensive if their parts are subject to tariffs. This is why Apple is so worried about the tariffs – maybe slightly less worried since smartphones and computers became exempt – but more worried since Trump said that very exemption is short lived.
• Reduced Product Choices: Higher costs may make it unprofitable to import certain goods, reducing the variety of products available to consumers. For example, in India, alcoholic beverages and spirits have historically faced tariffs of up to 150%, though recent reforms have reduced some peak tariffs to 70%. Wonder why.
• Inflationary Pressure: Widespread tariffs can contribute to overall inflation, as the increased costs ripple through the economy and reduce consumers’ purchasing power.

Summary Table: Tariffs and Consumer Prices

History of Tariffs in India

I did the research and it turns out that in India, Tariffs have been around from way before independence.

Colonial Era and Early Tariffs

• Tariffs and taxes on essential goods, especially salt, have a long history in India. During the British colonial period, salt taxation became particularly severe, leading to widespread smuggling and the creation of the Inland Customs Line—a 4,000-km hedge built in the 19th century to prevent salt smuggling across British-controlled territories. Also let’s not forget Gandhi’s salt satyagraha / dandi march which piqued the economic worries of the colonizers.
• The British also imposed punitive tariffs on Indian exports, especially textiles. The Calico Act of 1721 by the British Parliament set a 75% tariff on Indian textiles, devastating the industry. By 1813, India’s share of the global textile market fell from 25% to less than 3% due to such protectionist measures.
• In the late 19th century, British manufacturers influenced Indian tariff policy. In 1874, a mandate from England required the Indian administration to reduce import duties to favor British manufacturers, sacrificing a significant source of local revenue.

Early 20th Century and Independence

• The first Indian Tariff Board was established in 1923 to investigate tariff protection for emerging Indian industries, such as iron and steel.
• Tariffs continued to be used as a tool for revenue and to protect local industries, but policy was largely dictated by British interests until independence in 1947.

Post-Independence Protectionism (1947–1991)

• After independence, India adopted a protectionist trade policy, imposing high tariffs to nurture domestic industries and reduce dependence on imports. This included particularly high tariffs on electronics and other manufactured goods, which, while intended to foster local industry, often stifled innovation and delayed access to global technology.
• By the 1990s, these protectionist policies had resulted in inefficiencies and limited consumer choices.

Economic Liberalization and Tariff Reduction (1991–Present)

• The economic reforms of 1991 marked a major shift: India began reducing tariffs and opening up its markets to global competition. Tariffs on many goods, including electronics, were lowered, leading to greater innovation, increased imports, and a more competitive domestic market.
• In recent decades, India’s average tariff rates have generally declined, though they remain higher than many major economies. For example, in 2023, the average Most Favored Nation (MFN) applied tariff rate was 17%, with 13.5% on non-agricultural goods and 39% on agricultural goods.
• Recent years have seen some increases in tariffs to protect local industries, but the overall trend since the 1990s has been toward liberalization. For instance, the average tariff rate was 5.87% in 2021, down from 6.19% in 2020.

Key Events and Trends

Modern Context

India is known for maintaining some of the highest average tariff rates among major economies, especially on select categories of imports. Below are some of the most heavily tariffed import categories:

Agricultural Products

• Average tariff on agricultural goods: 39%. Specific examples:
• Vegetable oils, apples, corn, coffee, raisins, walnuts, and alcoholic beverages all face high tariffs, often ranging from 25% to over 50%.
• Dairy products such as buttermilk and fermented milk products face tariffs up to 56.46%, and milk powder at 30.84%.

Luxury and Motor Vehicles

• Imported passenger vehicles can face tariffs as high as 70%.
• Luxury cars with a CIF value exceeding $40,000 attract a 40% surcharge plus a basic customs duty of 70%.
• Used motor vehicles face an AIDC (Agriculture Infrastructure Development Cess) tariff of 67.5%.

Alcohol and Beverages

• Alcoholic beverages and spirits have historically faced tariffs of up to 150%, though recent reforms have reduced some peak tariffs to 70%.

Footwear and Apparel

• Footwear tariffs range from 20.8% to 29.51% depending on material and type.
• Garments made of synthetic fibers, knitted or crocheted, can face tariffs up to 28.2%.

Chemicals and Plastics

• Laboratory chemicals and certain other chemicals have seen tariffs as high as 70%, though some reductions have occurred recently.

Solar Cells and Electronics

• Solar cells and modules attract a surcharge of 7.5% to 20% on top of a 20% basic import tariff.

Other Notable Categories

• Marbles, granite, and slabs: 20% basic customs duty plus a 20% surcharge.
• Household items and furniture: Surcharges ranging from 5% to 20% depending on the item.

Summary Table

India’s tariff structure is designed to protect domestic industries, but it also results in some of the world’s highest import duties on a range of goods, especially luxury, agricultural, and manufactured products. India’s tariff regime remains a subject of international negotiation and dispute, particularly with major trading partners like the United States, which has criticized India for maintaining high tariffs on certain products.

While tariffs are still used to protect sensitive sectors—especially agriculture—India has generally moved toward lower and more rationalized tariff structures in line with global trade norms.

India’s tariff history reflects a shift from colonial exploitation and protectionism to gradual liberalization and integration with the global economy, with ongoing debates about the balance between protecting local industries and promoting trade.

The Immediate Effects of The 26% Tariffs

Firstly, let’s be real – these new reciprocal tariffs including the 26% ballpark tariff rate on Indian exports to the US may never really come into effect. The Trump administration – especially this one – is now know to change their mind depending on the weather.

The above image has been the source of some of the best memes of the year so far.

Secondly, even if the tariffs do come into effect, relations between the Indian Prime Minister and Trump are on a high, at least at the time of me writing this post. Trump said so himself – that he thinks that the Indian Prime Minister is a smart man and he’s sure that a deal will be worked out. And boy does Trump love to ‘make a deal’.

Okay so if the tariffs take effect and if not deal is worked out, here are the possible immediate effects:

• Decline in Indian exports to the US (estimated 5 – 7%) especially in the sectors of fisheries, jewelry, iron and steel, vehicles and auto parts (sucks if you’re Tata who recently decided to become Tesla’s key supplier – see TWITI #12 of 2025).
• Indian goods in the US market will become less competitive because of increased prices (I would call it an unfair trade practice on the part of the US but hey what do I know about economics 🫤).
• Stock market volatility. The Sensex and nifty have anyway been on the decline since before Trump took office, some say that this is just a correction that happens once every few years because a lot of companies are overvalued. But the market reacts to news as much as it reacts to actions, and these on-again off-again tariffs have shown to drag the markets up and down.
• Currency volatility. Maybe the rupee will get even weaker. Analysts are already predicting that the rupee will touch 100 against the USD this year, with or without tariffs.

There are other sector specific impacts. For example, if the smartphone tariffs return and are imposed on India, this may hamper our goal of having 25% of all iPhones produced in India by 2028.

Pharmaceuticals, semiconductors, and some energy products are currently excluded from the new tariffs, but there is a threat of future inclusion.

And if one is asking ‘if the US is being so tough why don’t Indian companies just sell to other countries’ it is a very valid question and a possibility, and some companies may just do that. It’s just that at a macro level, with the Trump administration being so stubborn and fickle minded, the Indian Government might need to engage in more diplomacy and they might do that by absorbing some of the tariff cost. Which is great for US-India relations but bad for the Indian taxpayer – I would not want a single rupee from my taxes to go towards a tariff that Trump decided to unilaterally impose because he’s a bitch.

I will never go into politics, as you can see I’m terrible at diplomacy.

In the Long Term, It Will Not Matter

At a macro level, at a national level – my argument is that these 26% tariffs, even if implemented and a deal is not worked out, will not matter in the long run.

If you observe India’s economic growth over time, you will realize that India’s economic foundations – from agriculture to services – are built on the creation of value. India’s economic growth has been through the peak and recession cycles, but at any given point in time the economy was always stronger than it was 10 years prior. Industry India – and later Tech India – is built on expertise, stemming from 100s of years of a culture of knowing that only value created and share will lead to livelihood and prosperity.

We recovered from demonitisation, and have scaled new heights. We were shielded from the 2008 recession because of our self-sustenance and sense of sustenance. We moved past many corporate scams stemmed from corruption. Compared to all these, tariffs are nothing. It’s just a pinch – a scratch which will heal on its own and we won’t pay attention to it after a day.

As a consumer, do not consider bringing forward your purchase decisions because of this tariff story. For example, if you plan to buy a new phone next year or later this year, do not buy this new phone now thinking that the tariffs will make it more expensive. Over time, even over a few months, consumer prices will self-adjust through the market forces and you will have the same choices and price ranges as you have now (adjusted for inflation).

And finally, don’t follow the news so intently. News outlets have to sensationalize so that the newspapers sell or your eyeballs are glued to the news websites and/or channels. In general, and specifically in the case of tariffs, things are not as bad as they are made out to be.

Here’s a pun: What is Trump’s favorite Bollywood song? It’s from the movie Kashmir ki Kalli, it goes something like “Tariff karun kya uski…” ok sorry. Thanks for reading, share this with three friends and one family member.