Business cycles · India + global · 2025
The April 2025 US Reciprocal Tariffs, Explained for India
Learn who pays a tariff, how its cost reaches Indian exporters, and why markets reacted when the US announced and paused higher duties in April 2025.
By Vimista EditorialPublished Updated 7 min read
Contents · Jump to a section
Imagine an Indian garment company selling clothes to a US shop. The price is agreed, and the exporter expects the order to go ahead. Then the US announces a new tax on imported goods. The shop now faces a higher bill for buying the same clothes.
Who pays that extra cost? The American buyer, the Indian seller, or the person who eventually buys the clothes?
In April 2025, this became a real concern for Indian businesses. The US announced a 26% additional rate for covered Indian goods, then paused that higher rate within days. The policy changed quickly. Buyers and sellers had to work out what the extra cost would mean for their orders.
What the US announced
A Customs dutyA customs duty is a tax on imported goods. A high duty makes imports costlier and shields local producers from foreign competition.View topic and related stories, also called a customs duty, is a tax on goods imported into a country. It raises the cost of bringing those goods in, which can make locally produced alternatives more competitive.
On 2 April 2025, the US announced an additional 10% duty on covered imports, followed by higher rates for many countries. India was listed at 26%. This was the country-specific additional rate, replacing the 10%; it was not 26% plus 10%. Ordinary duties and other applicable charges were separate.
The US government called the measures “reciprocal”. Its order cited trade barriers and the US Trade deficitA trade deficit arises when a country's imports of goods exceed its exports. It is one part of the current account, which also includes services and transfers.View topic and related stories as reasons for acting. A goods trade deficit means a country buys more goods from abroad than it sells abroad. That describes a trade balance; it does not tell us who will bear a new tariff.
For our garment exporter, the immediate question was what the US shop would do about its higher buying cost.
The buyer pays customs, but the cost can travel
The party responsible for declaring the goods to US customs is called the importer of record. It is responsible for paying the duty. In our hypothetical example, suppose that party is the US shop.
Imagine its shipment has a customs value equivalent to ₹10 lakh. At a 10% additional tariff, the duty adds ₹1 lakh. At 26%, it adds ₹2.6 lakh. These rupee figures illustrate the calculation; US customs would assess the shipment in dollars. Ordinary duties and other charges are left out.
The Indian exporter does not automatically write that cheque to the US government. But that does not mean it escapes the cost.
The shop might ask the exporter for a discount. If the exporter agrees while its production costs stay unchanged, its profit shrinks. Or the shop might keep buying at the agreed price but raise its shelf prices, passing some of the cost to customers. If customers buy fewer clothes at the higher price, future orders may shrink too.
The shop could also absorb the extra cost in its own profit, reduce its order, or look for another supplier. These are possible responses, not claims about what a particular company did.
This is Cost pass-throughA higher input cost can be absorbed in a business’s profit, passed to customers through prices, or shared between them. Contracts, competition and the size of that input affect the result.View topic and related stories: a higher cost moves through the chain as businesses adjust prices. How much each side bears depends on its alternatives. If the shop can easily buy similar clothes elsewhere at a lower total cost, the Indian exporter faces more pressure to lower its price. If alternatives are limited, the buyer may have to absorb more or charge its customers more.
So “the importer pays the tariff” answers who pays customs first. It does not fully answer whose income or spending power is reduced in the end.
Then the higher rate was paused
The policy did not stay as announced. The 10% baseline began on 5 April. India’s higher 26% rate began on 9 April, but was replaced by 10% from the next day under a 90-day pause for most trading partners.
The pause reduced the additional charge; it did not remove it. For the covered ₹10 lakh shipment in our example, 10% would still add ₹1 lakh.
This also explains why the announcement alone could not tell a business its final bill. Signing a sale contract before the announcement did not by itself protect the shipment. The product, when it entered US customs, and any exception determined the treatment.
Some products were exempt, and qualifying goods already in transit had separate rules. Two shipments from India could therefore face different charges. The 26% headline was not a bill applied to every Indian export.
The pause was temporary, and later orders changed India’s rate again. Those developments are covered in the August 2025 US tariff article. A rate being announced, taking effect, and actually applying to a shipment were three different steps.
Why uncertainty mattered even before sales were lost
Return to the garment company. Suppose it is considering buying new sewing machines to meet expected US orders. The buyer has not cancelled, but neither business knows what tariff will apply to future shipments.
The exporter may wait before buying the machines. The US shop may postpone its next order until it knows what the stock will cost. Even if the higher tariff is later paused, those decisions may already have been delayed.
This is a hypothetical example of a wider economic mechanism: uncertainty can affect spending before a loss is recorded. In April, the Reserve Bank of India said trade-policy uncertainty could weaken investment and spending. It also said the many unresolved questions made the impact difficult to quantify.
A pause can ease an immediate cost without giving businesses enough certainty to make long-term plans.
Why share prices moved before export figures did
Investors faced a similar question: what might these changes do to companies’ future profits?
If they expect an exporter to accept lower prices, receive fewer orders or delay expansion, they may pay less for its shares today. That is how changing Market expectations and surprisesShare prices usually reflect what investors broadly expect. A known outcome can still move prices if it differs from those expectations, so the surprise often matters more than the news itself.View topic and related stories can affect a share price before the company reports lower earnings.
Indian markets fell during the turmoil. On 7 April, India’s public broadcaster reported a roughly 3% fall in the Sensex and Nifty, linking it to escalating trade tensions and recession fears.
A Stock market indexAn index is a single number that tracks the prices of a chosen group of shares. It is used to describe how a market, or part of it, has moved.View topic and related stories tracks share prices across a selected group of companies, with some carrying more weight than others. A 3% fall in an index does not mean exports fell 3%, or that every company lost 3% of its business. Share prices reflect what investors are willing to pay; export sales have to be measured separately.
For an Indian reader, this is the link between a foreign trade announcement and the domestic market. A change in the cost of selling abroad can alter expected profits, and those expectations can move prices immediately. The market reaction is evidence of changing prices, rather than a measurement of damage already done to exporters.
A short update on what happened later
The legal basis of these tariffs was challenged in the US. In February 2026, the Supreme Court held that the International Emergency Economic Powers Act, the law used for the April measures, did not authorise the President to impose tariffs.
The US then announced a separate temporary 10% import surcharge under another law, Section 122 of the Trade Act. That was a different measure with its own conditions. This historical account ends with that announcement and does not describe the tariff rules in force today.
The court ruling adds one more distinction: announcing a tax and having legal authority to impose it are separate questions.
What to remember
- Who pays first is different from who bears the cost. An importer pays customs, but exporters, importers and customers can share the economic burden.
- A tariff can affect both profit and sales. Accepting a lower selling price reduces profit; losing orders reduces sales. These are different ways a business can be affected.
- Uncertainty has a cost too. A business may delay an order or investment while waiting for the rules to become clearer.
- A headline rate is not a universal bill. The applicable date, product and exceptions matter. A share-market fall is not a measure of export losses.
Disclaimer
This article is for education only and is not investment, tax or legal advice. It explains historical measures; customs treatment depends on the rules and shipment details applicable at the time.
Sources
Show 8 sources
- The White House, Executive Order 14257, “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits”, 2 April 2025
- The White House, Executive Order 14266, “Modifying Reciprocal Tariff Rates To Reflect Trading Partner Retaliation and Alignment”, 9 April 2025
- US Customs and Border Protection, CSMS #64680374, “GUIDANCE – Reciprocal Tariffs, April 5 and April 9, 2025, Effective Dates”, 8 April 2025
- US Customs and Border Protection, “Entry Summary and Post Release Processes”, undated
- Supreme Court of the United States, Learning Resources, Inc. v. Trump, No. 24-1287 (with No. 25-250), slip opinion, decided 20 February 2026
- The White House, “Imposing a Temporary Import Surcharge to Address Fundamental International Payments Problems”, proclamation, 20 February 2026
- Reserve Bank of India, “Governor’s Statement”, Monetary Policy Committee, 9 April 2025
- All India Radio (Prasar Bharati), “Sensex Crashes 2,227 Points, Nifty Slumps 743 Amid Global Recession Fears”, 7 April 2025