A Geoeconomic Tool, How US Reciprocal Tariffs Are Shaping Global Trade

A Geoeconomic Tool, How US Reciprocal Tariffs Are Shaping Global Trade

Why in News?

Starting August 7, 2025, the United States is imposing a 25% tariff on exports from India, making India one of the few nations yet to reach a trade agreement with the US. This move is part of a broader strategy by the US to use tariffs as a geoeconomic tool—a method of leveraging trade to push political and economic interests across global partnerships. The implementation of these reciprocal tariffs has stirred debate around the fairness, effectiveness, and long-term impact of such economic measures.

Introduction

In an increasingly interconnected global economy, trade is no longer simply about exchanging goods and services. It has become an extension of diplomacy, strategy, and national security. The United States’ recent approach—using tariffs not just for economic but also strategic purposes—highlights how trade policy is evolving into a central instrument of international relations.

India’s inclusion in this policy through the imposition of 25% tariffs has raised several questions. Will this harm India more than countries that have already negotiated favorable terms with the US? Or is India simply caught in a larger game of global power dynamics where tariffs are the new language of pressure and persuasion?

The Concept of Reciprocal Tariffs

Reciprocal tariffs are not a new idea, but their current application has taken on new significance. Under the executive order issued by the White House, several countries have negotiated reduced reciprocal tariffs before July 31. India, however, has not. Countries such as Bangladesh (20%), Indonesia (reduced from 40% to 19%), Vietnam (reduced from 46% to 20%), and even the UK (10%) have successfully brokered better terms.

The underlying message is clear: nations that comply with the US’s demands or align their trade structures with American interests are rewarded with lower tariff burdens. Those who resist or delay negotiation face steeper costs.

Tariffs as a Geoeconomic Strategy

The US is not just protecting domestic industries; it is using tariffs to correct trade imbalances and gain leverage in bilateral relationships. This strategy stems from the belief that tariffs can:

1. Correct trade deficits with major partners.

2. Protect national security by addressing “injurious” imports, such as steel, aluminium, and pharmaceuticals.

3. Enhance bargaining power in broader trade and foreign policy negotiations.

Section 232 of the Trade Expansion Act of 1962 has become a key legislative tool in this regard. It allows the US President to impose tariffs based on national security concerns. These include goods like automobiles, copper, trucks, jet engines, aircraft, and even food products.

India’s Situation

India’s case stands out for two reasons:

1. Delay in Securing a Deal: Despite multiple rounds of bilateral trade talks, India has not yet secured a tariff concession deal with the US, unlike other countries.

2. High Tariff Exposure: With most of India’s exports to the US now facing a 25% tariff from August 7, key sectors such as automobiles, pharmaceuticals, steel, and textiles are likely to be affected.

India’s delay might be due to a complex mix of domestic interests, political hesitation, and strategic autonomy. However, the immediate implication is that Indian exporters will face higher costs, reducing their competitiveness in the American market.

Impact on Other Countries

The variation in reciprocal tariffs imposed on other nations reflects how the US customizes its trade strategy:

• Bangladesh secured a 20% rate, likely due to economic dependencies and minimal security concerns.

• Vietnam still faces a 20% reciprocal rate but struggles with re-shipment tariffs of 40%, affecting its export-driven economy.

• Indonesia managed to lower its tariffs significantly, showing a willingness to cooperate quickly with US demands.

• The UK secured the lowest tariff of 10%, aided by promises of heavy investment in the US and favorable auto export caps.

• Japan negotiated down from 24% to 15% through exemptions under Section 232.

Each country’s outcome reflects its strategic value to the US and the level of diplomatic effort put into resolving trade disputes.

The Bigger Picture: A Global Trade Recalibration

What we are witnessing is not merely a tariff war but a recalibration of global trade norms. The US is clearly shifting away from multilateral agreements and embracing a more bilateral, strategic, and tailored approach to trade.

This method allows it to reward allies and penalize adversaries, using tariffs as both a shield and a sword. Countries are now negotiating not just for economic gains but for geostrategic positioning.

Challenges Ahead for India

India’s refusal or delay in engaging with the US on its terms could have long-term ramifications:

• Export Losses: Higher tariffs mean reduced demand for Indian goods in the US, India’s largest export destination.

• Domestic Industry Impact: Sectors like IT, pharmaceuticals, and engineering goods may bear the brunt.

• Investor Confidence: Uncertainty in trade policy could deter American investors.

• Missed Strategic Opportunities: Trade deals are often stepping stones for broader political and defense cooperation.

While India values strategic autonomy and may resist being coerced into lopsided agreements, there is a clear need for a proactive and nuanced trade policy that safeguards national interests while engaging constructively with major powers.

The Way Forward

To navigate this challenging landscape, India needs to adopt a three-pronged approach:

1. Bilateral Engagement: Resume trade negotiations with the US with a focus on mutual benefit and long-term gains.

2. Domestic Competitiveness: Support industries likely to be hit by tariffs through incentives, tax breaks, and innovation funding.

3. Strategic Partnerships: Strengthen trade alliances with the EU, ASEAN, and emerging markets to diversify export dependencies.

India should also keep an eye on how Section 232 tariffs evolve and push for a more transparent and rules-based trade environment.

Conclusion

The imposition of reciprocal tariffs by the US marks a new era of geoeconomic diplomacy, where trade is leveraged as a powerful tool to achieve strategic goals. India’s current position—outside the favorable circle of tariff-reduced nations—calls for urgent action.

While some may argue that standing firm shows strength, in today’s interconnected economy, flexibility and foresight are equally important. Trade cannot be divorced from diplomacy, and economic power is as much about cooperation as it is about competition.

As the global order continues to shift, India must strike a careful balance between protecting sovereignty and pursuing pragmatic diplomacy. The choice lies between economic marginalization and strategic engagement—and that decision must be made soon.

Q&A Section

1. What are reciprocal tariffs, and why has the US imposed them?

Reciprocal tariffs are trade measures where one country imposes similar tariffs on goods from another country based on how its own exports are treated. The US has imposed these to correct trade deficits, enhance national security, and gain leverage in bilateral trade negotiations.

2. Why is India facing a 25% tariff on its exports to the US?

India has not yet finalized a trade deal with the US. Unlike other countries that negotiated lower tariffs before July 31, India did not make such arrangements, leading to the imposition of the full 25% reciprocal tariff starting August 7.

3. How do these tariffs affect India’s economy?

The tariffs could significantly reduce Indian exports to the US, affect key industries like automobiles, pharmaceuticals, and textiles, and weaken investor confidence in the Indian economy. This could lead to lower GDP growth and reduced job creation.

4. What have other countries done differently to avoid these high tariffs?

Countries like Bangladesh, Indonesia, Vietnam, and the UK have negotiated deals with the US that reduced their reciprocal tariff rates. These deals often involved strategic economic or political commitments, such as investment pledges or support for US policies.

5. What should India do to mitigate the impact of these tariffs?

India should urgently engage in bilateral trade talks with the US, offer flexible solutions without compromising sovereignty, support affected industries, and diversify its export markets. Enhancing domestic competitiveness and forming stronger regional trade alliances is also essential.