The Indian government, including Minister Piyush Goyal, senior Commerce Ministry officials along with representatives from industry, is working tirelessly to resolve trade disputes with the United States (US) and finalise a Bilateral Trade Agreement (BTA).
But President Donald Trump has made it clear that India will not receive any exemptions. Reciprocal tariffs on Indian goods will take effect from 2 April 2025, after Trump declared, “We will impose the same tariffs on them as they do on us.” One of the key sectors affected will be pharmaceuticals.
The critical question now is: What will be the impact of these reciprocal tariffs on India’s pharmaceutical exports? This article argues that tariffs will not only hurt Indian drug manufacturers but also US consumers and pharmaceutical companies. Initially, Indian firms may have to absorb some of the increased costs, but over the medium term, the situation could stabilise as the Trump administration might be forced to reconsider some of its trade policies. For the long run, however, the Indian pharmaceutical industry should develop strategies to diversify export markets and establish more geographically distributed manufacturing hubs to mitigate future risks.
Nature of Reciprocal Tariffs
The nature of the reciprocal tariffs – whether there is going to be a single rate, calculated based on the difference in the average tariffs faced by exporters of both countries, appliable to a particular sector or multiple rates within a sector, calculated based on the difference in tariff rates at product level – is not clear. A third possibility, although a distant one, is cross-sector retaliatory tariffs. India’s weighted average tariff on US exports of automobiles and components is 24.1%, and the US’s weighted average tariff on Indian exports of automobiles and components is just 1%. It would not make sense for the US to impose a retaliatory tariff of 23.1% on Indian exports of automobiles and components, as India’s exports to the US on this are extremely low. But it would be a rational choice for the US to impose a higher retaliatory tariff on Indian pharmaceutical exports to the US, which is quite substantial. Cross-sector retaliation is permitted under the WTO dispute settlement mechanism. Whatever may be the nature of Trump’s reciprocal tariff policy, the Indian pharmaceutical industry is a key sector that is going to be hit hard.
Indian pharmaceutical firms may have to absorb some of the increased costs following US’ retaliatory tariffs, but over the long run the industry should develop strategies to diversify export markets and establish more geographically distributed manufacturing hubs to mitigate future risks.
If it is going to be a single rate for a sector, the reciprocal tariff facing the Indian pharmaceutical exporters will be 10.9%, which is the difference of weighted average tariffs faced by exporters in both countries, according to a report by Global Trade Research Initiative. While Indian exporters to the US face almost zero tariffs in pharmaceuticals, US exporters to India face, on average, a 10.9% tariff. If it is going to be product-specific, the reciprocal tariff facing each product within the pharmaceutical sector is going to be different. However, if it is cross-sector retaliation, the reciprocal tariffs facing the Indian pharma exports will be more than 10.9%. While we will have to wait a few more days to know how Trump’s retaliatory tariff policy is unfolding, the pertinent question that we need to address now is what the likely implications of this policy are.
