 "The clause that could still exempt India from Trump's tariffs")
In a significant development for global trade relations, US President Donald Trump announced on Wednesday (Thursday, India time) sweeping “reciprocal tariffs” affecting most countries worldwide, including a 26 per cent blanket but ‘discounted’ tariff on Indian imports. However, a specific exemption clause in the executive order could provide India with a pathway to avoid these tariffs. The potential for India to secure exemptions is based on Section 4(c) of Trump’s executive order.
What Trump’s reciprocal tariff structure talks about
Trump unveiled his long-anticipated “reciprocal tariffs” on imports from nearly all countries worldwide. This measure aims to address what the administration perceives as unfair trade practices and significant trade deficits with various countries. Trump argued that these tariffs will help “rebalance global trade flows” and promote domestic manufacturing in the United States.
The tariff structure follows a tiered approach:
- A uniform 10 per cent tariff will apply to most countries starting April 5
- Specific higher tariffs for countries with larger trade imbalances, including India’s 26 per cent tariff, will take effect from April 9
- Certain goods are exempted from these tariffs, notably pharmaceuticals, semiconductors, energy products, and certain minerals
For India specifically, Trump has justified the 26 per cent tariff by claiming that India imposes a 52 per cent tariff on US goods through various mechanisms including non-tariff barriers and currency manipulation. Trump claimed tariff disparities, citing India’s 70 per cent tariff on passenger vehicle imports compared to the US rate of 2.5 per cent, and India’s 10 per cent tariff on network switches and routers against the US rate of zero per cent.
How much India trades with the US
The United States reported a goods trade deficit with India of $45.7 billion in 2024, representing a 5.4 per cent increase from 2023. The US’s imports from India reached $87.4 billion in 2024, a 4.5 per cent increase from the previous year, with total bilateral trade valued at $129.2 billion. These figures underpin Trump’s argument for implementing the reciprocal tariffs.
The clause that may allow India exemption: Section 4(c)
The most significant aspect of Trump’s executive order for countries facing these tariffs is Section 4(c), which says, “Should any trading partner take significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters, I may further modify the HTSUS to decrease or limit in scope the duties imposed under this order.”
This clause effectively creates a pathway for countries, including India, to negotiate exemptions or reductions in the imposed tariffs by addressing specific US concerns about trade imbalances and aligning more closely with US economic and security interests.
Impact Shorts
More ShortsHow India has responded to Trump tariffs
Indian officials have responded promptly to Trump’s announcement, expressing belief that the tariffs “aren’t a setback” and that India could secure exemptions under Clause 4 of the executive order. The commerce ministry has already established a control room to monitor and respond to the situation, with senior officials conducting review meetings after Trump announced his “Liberation Day” tariff measures at the White House’s Rose Garden.
India appears to be drawing particular comfort from Section 4(c), viewing it as an opportunity to negotiate exemptions by addressing US concerns about non-reciprocal trade arrangements and aligning more closely on economic and security matters. Officials are conducting comprehensive reviews of tariffs imposed on different countries to identify potential strategies for securing exemptions.
How Indian can negotiate exemptions from Trump’s reciprocal tariffs
To qualify for exemptions under Section 4(c), India would likely need to consider several approaches, such as by addressing tariff disparities to Trump’s satisfaction, streamlining non-tariff barriers and through economic and security arrangements.
The White House highlighted significant tariff disparities between India and the US, including:
- 70 percent tariff on passenger vehicles versus US’s 2.5 per cent
- 10-20 percent on networking equipment versus US’s 0 per cent
- 80 percent on rice in the husk versus US’s 2.7 per cent
- 50 percent on apples versus significantly lower US rates
India may also consider reducing tariffs in some of these key sectors to demonstrate a commitment to addressing the non-reciprocal trade arrangements cited by the US administration.
The US has specifically identified India’s “uniquely burdensome and/or duplicative testing and certification requirements” in sectors such as chemicals, telecom products, and medical devices as barriers to US exports. The White House estimates that removing these barriers could increase US exports by at least $5.3 billion annually. Reforming these regulatory requirements could significantly strengthen India’s case for exemption.
Economic and security arrangements aligned to the US’s interests could be another pathway to negotiate exemption. The clause specifically mentions alignment “sufficiently with the United States on economic and national security matters”. This suggests that broader cooperation on strategic issues, including Indo-Pacific security, technology cooperation, and alignment on global economic governance, could factor into exemption decisions.
It won’t be a departure for Trump: Some sectors are already exempted
While India faces a blanket 26 per cent tariff, the executive order already exempts certain sectors from these reciprocal tariffs, providing some relief to specific Indian industries.
Pharmaceutical industry has already got reprieve in Trump’s latest announcements. The exemption of pharmaceuticals from the reciprocal tariffs represents a significant relief for India’s generic medicines industry, which is a major exporter to the US market. This exemption recognises the importance of affordable medication supply chains and acknowledges India’s critical role in the global pharmaceutical industry.
Other exempted categories include:
- Energy and certain minerals not available in the United States
- Semiconductors
- Copper and lumber articles
- Bullion
- Steel and aluminum articles already subject to Section 232 tariffs
These exemptions suggest a pragmatic approach that acknowledges supply chain dependencies and existing trade measures, potentially providing a foundation for further negotiations.
India-US trade goes long back and has a long future
The current tariff situation needs to be understood within the broader context of India-US trade relations, which have experienced both cooperation and tension. India has historically maintained higher tariff barriers as part of its development strategy, while the US has increasingly pushed for greater market access and reciprocity in trade arrangements.
The US Trade Representative’s explanation of the tariff calculations notes that the rates were determined based on what “would drive bilateral trade deficits to zero,” considering not just formal tariffs but also “regulatory barriers, environmental reviews, differences in consumption tax rates, compliance hurdles and costs, currency manipulation and undervaluation”. This comprehensive approach suggests that India’s negotiations for exemptions will need to address both tariff and non-tariff issues.
The clause in Trump’s executive order provides India with a potential pathway to avoid or reduce the 26 per cent tariff set to take effect on April 9. However, securing these exemptions would likely require significant trade policy adjustments and increased alignment with US economic and security interests.
India’s prompt response in establishing a control room and conducting immediate reviews demonstrates the importance it places on addressing this issue. The government’s expressed optimism about securing exemptions suggests it may be prepared to make concessions in certain areas to maintain favorable trade access to the US market.
For businesses engaged in Indo-US trade, this period represents both uncertainty and opportunity. While the immediate threat of tariffs creates challenges, the exemption pathway potentially opens doors for more systematic addressing of long-standing trade frictions that could ultimately lead to stronger, more balanced trade relations between the two countries.
As the April 9 implementation date approaches, all eyes will be on the diplomatic and economic negotiations between India and the United States to determine whether Section 4(c) will indeed provide the exemption that Indian officials currently believe is possible.
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