Tariffs have long played a crucial role in U.S. economic strategy, shaping industries, altering diplomatic relations, and redefining global trade. The latest development in this long history is the implementation of U.S. reciprocal tariffs, a policy shift announced by President Donald Trump in February 2025. This move aims to align U.S. import duties with those imposed by its trading partners and is poised to have significant ramifications for India’s export-driven economy.
A History of US Tariff Wars: Lessons from the Past
Tariffs have long been a fundamental tool in economic policy, used by governments worldwide to protect domestic industries, control trade balances, and respond to global economic challenges. A tariff is essentially a tax imposed on imported goods, making foreign products more expensive and, in turn, encouraging consumers to buy locally produced alternatives. By doing so, governments aim to shield key industries from external competition, preserve jobs, and maintain economic stability.
Historically, the United States has leveraged tariffs as both a defensive and strategic measure. From the Smoot-Hawley Tariff Act of 1930, which sought to protect American farmers and manufacturers during the Great Depression, to the recent US-China trade war, where tariffs were used to counter alleged unfair trade practices, these policies have significantly shaped global commerce. While tariffs can sometimes lead to retaliation from other nations, causing trade tensions, they remain a powerful economic instrument used by governments worldwide to fortify their national industries and economic interests.
1. The Smoot-Hawley Tariff Act (1930)
At the height of the Great Depression, US lawmakers sought to shield domestic industries from foreign competition. The Smoot-Hawley Act raised tariffs on over 20,000 imported goods, aiming to boost American production. However, the move backfired spectacularly. Global trade partners, including Canada and European nations, retaliated with their own tariffs, sending global trade into a downward spiral. By 1933, US exports had plummeted by 61%, worsening the economic downturn. The lesson? Protectionist policies can sometimes deepen the very crises they aim to resolve.
2. Tariffs During the Cold War (1947-1991)
During the Cold War, US tariff policies were heavily influenced by geopolitical alignments. While the US promoted free trade among allies through agreements like the General Agreement on Tariffs and Trade (GATT), it imposed strict trade restrictions on communist states such as the Soviet Union and China. The Export Control Act of 1949 limited technology exports to prevent military advancements in rival nations. Additionally, US tariff policies often sought to protect domestic industries from competition from emerging economies, including Japan and South Korea, as they grew into industrial powerhouses. The Cold War era demonstrated how tariffs could serve both economic and strategic interests.
3. The Chicken War (1961-1964)
The Chicken War was a significant trade dispute between the US and Europe, particularly West Germany and France. As American chicken exports surged due to industrialized poultry farming, European nations imposed high tariffs to protect their domestic farmers. In response, the US retaliated with tariffs on European trucks, brandy, and other goods. This trade conflict had lasting effects—most notably, the 25% tariff on light trucks, which persists to this day and has influenced the global automotive industry. The Chicken War showcased how seemingly small trade disputes could have long-term economic consequences.
4. The US-Japan Trade Tensions (1980s-1990s)
By the 1980s, Japan’s booming automobile and electronics sectors were unsettling American manufacturers. Washington accused Tokyo of unfair trade practices and responded with tariffs and import restrictions. Eventually, Japan agreed to voluntary export restraints, limiting car shipments to the US. Additionally, the Plaza Accord led to a stronger yen, making Japanese exports pricier. While the conflict was managed, it contributed to Japan’s economic stagnation in the following decade, demonstrating the unintended long-term effects of trade restrictions.
5. The Steel and Aluminum Tariffs (2002 & 2018)
Both Presidents George W. Bush and Donald Trump imposed steel and aluminum tariffs to protect American industries. Bush’s 2002 tariffs led to higher domestic prices and job losses in steel-consuming sectors, prompting a quick reversal. Trump’s 2018 tariffs, citing national security concerns, triggered retaliatory tariffs from allies like the EU and Canada. These moves illustrated how short-term protectionism often invites countermeasures, affecting broader economic interests.
6. The US-China Trade War (2018-Present)
The most consequential trade war of the 21st century, the US-China conflict, began with American tariffs on Chinese goods, citing trade imbalances and intellectual property theft. Beijing retaliated with tariffs on US agricultural exports, hitting American farmers hard. Over time, supply chains were disrupted, consumer prices rose, and businesses adjusted by diversifying their sourcing. While partial trade deals have eased tensions, the conflict persists, reshaping global trade dynamics and reinforcing economic nationalism.
U.S. Reciprocal Tariffs: A Strategic Opportunity for India
Tariffs have historically played a key role in shaping global trade, often leading to short-term disruptions but also creating long-term opportunities. The recent announcement of U.S. reciprocal tariffs in February 2025 may raise concerns about India’s export sector, but a closer look reveals that the impact is unlikely to be severe. In fact, this could be a blessing in disguise for India’s domestic industries, encouraging self-reliance, attracting foreign investment, and strengthening the country’s manufacturing capabilities.
Since the liberalization of its economy in 1991, India has seen a dynamic trade relationship with the United States. As of the fiscal year 2023-24 (FY24), the U.S. accounted for approximately 18% of India’s total exports, up from 16.4% in FY92 but below the peak of 22.8% in FY00. The primary commodities exported to the U.S. include pharmaceuticals, precious stones, petroleum products, telecom instruments, and ready-made garments, collectively constituting 40% of India’s exports to the U.S.
Why the Tariff Impact on India Will Be Limited
Economic assessments suggest that while certain Indian sectors may face immediate challenges, the overall impact will be manageable:
- Minimal Export Decline: According to a State Bank of India (SBI) report, even if tariffs are imposed at rates between 15%-20%, India’s exports to the U.S. would decline by only 3%-3.5%—a negligible impact in the larger economic picture.
- Increased Foreign Direct Investment (FDI): Higher U.S. tariffs on imports could push major American companies to set up manufacturing units in India rather than exporting goods from the U.S. This aligns with the Make in India initiative, boosting local production.
Boost for Domestic Production and Job Creation
Instead of viewing tariffs as a setback, India can leverage this situation to enhance its domestic manufacturing and job market:
Growth in Manufacturing: Industries like steel, aluminum, and textiles will have greater incentives to increase domestic production, reducing dependency on imports.
Tesla & Other U.S. Brands May Enter India: American companies that have long wanted to enter the Indian market—such as Tesla—will now find it more viable to establish production and assembly plants in India. This will not only bring cutting-edge technology but also create thousands of jobs.
Boost for Local Supply Chains: Increased foreign investment in manufacturing will enhance India’s supply chains, benefiting local businesses and strengthening the country’s industrial base.
Strategic Responses and Negotiations
In response to the proposed tariffs, India and the U.S. have agreed to initiate discussions aimed at resolving their trade disputes. Following talks between President Trump and Prime Minister Narendra Modi, India has pledged to purchase more U.S. oil, gas, and military equipment, and to combat illegal immigration. The two countries plan to complete an initial segment of the trade deal by the fall of 2025, with a comprehensive agreement anticipated within seven months.
Additionally, India is reportedly considering lowering tariffs on more than 30 products and increasing its imports of U.S. defense and energy goods to prevent higher reciprocal duties from Washington.
Why Did the U.S. Target India?
India’s Digital and Pharmaceutical Sovereignty Push
India’s push for self-reliance in pharmaceuticals, semiconductors, and digital services has unsettled U.S. firms. Restrictions on foreign cloud services and data localization laws are viewed as barriers to fair trade.
1.Agricultural Subsidies and Market Access
The U.S. has long opposed India’s Minimum Support Price (MSP) program, which makes Indian agricultural exports more competitive, disadvantaging American farmers and triggering tariff disputes.
2.Defense and Technology Divergence
India’s increasing defense collaborations with European partners and participation in alternative economic blocs like BRICS have raised concerns in Washington about diminishing U.S. influence in the Indo-Pacific region.
3.The India-Middle East-Europe Economic Corridor (IMEC)
As part of its strategy to diversify trade routes, India is actively engaged in the India-Middle East-Europe Economic Corridor (IMEC), a major connectivity initiative announced at the 2023 G20 Summit. IMEC aims to reduce dependency on traditional maritime routes and promote alternative trade partnerships, particularly with the Gulf and European nations, strengthening India’s global trade resilience.
Conclusion: A Win-Win Scenario for India
While tariffs may initially seem like an economic challenge, India stands to gain significantly by boosting domestic production, attracting foreign investment, and strengthening trade partnerships. The government’s proactive approach, coupled with global businesses seeking to tap into India’s vast market, ensures that the long-term outlook remains strong and optimistic.
