The U.S. Tariff Regime Under Trump: April 2025: Snapshot And Strategic Overview

The US Tariff Policy seeks to redress the trade deficit which exists for most countries around the world. The idea is to homeshore jobs and revitalize domestic manufacturing. President Trump has adopted a negotiation strategy designed to exert maximum pressure on trading partners by inflicting economic harm — with the belief that such hardship leaves nations with no alternative but to come to the negotiating table. This strategy draws heavily from the concept of BATNA (“Best Alternative to a Negotiated Agreement”), which focuses on leveraging the lack of better alternatives faced by America's trade partners, given its status as the world's largest consumer market.

The strategy is to move away from multilateral negotiations, towards bilateral deals that place the U.S. in a stronger negotiating position. Furthermore, President Trump recognises the impact of bilateral tariffs on global trade flows, including circumvention / transhipment of goods through third countries. A prime example is Chinese companies diverting trade through Vietnam. The measures on all countries except China are on 90 days pause.

Key Tariff Measures in Place

The U.S. tariff regime has tariffs: sector-specific tariffs under national security provisions, and broader reciprocal tariffs aimed at countries with whom the United States has a trade deficit.

1. Sector-Specific Tariffs (Section 232 of the Trade Expansion Act of 1962)
   • Steel and Aluminium: 25% tariffs continue across the board.
   • Automobiles and Automotive Parts: 25% tariffs imposed under Proclamation 10908. The tariff on automobiles is effective from April 3, 2025, and on parts from May 3, 2025 (parts).
2. Reciprocal Tariffs
   • Baseline Tariff: A flat 10% ad valorem tariff imposed on imports from 57 countries.
   • Country-Specific Reciprocal Tariffs: These were to be over the baseline 10% but were paused for 90 days on April 9, 2025. These additional tariffs had included:
     • Vietnam (46%)
     • Sri Lanka (44%)
     • Bangladesh (37%)
     • Taiwan and Indonesia (32% each)
     • India (27%)
     • EU (20%), Japan and Malaysia (24% each)

Notably, China remains excluded from this pause, with its tariff rate raised to 145%, and some products facing tariffs as high as 245%.

Legal Basis and Mechanisms

The legal authority for these tariffs is derived from three main legislations:

• International Emergency Economic Powers Act (IEEPA) –Executive Order dated April 2, 2025, to declare the trade deficit a national emergency.
• Section 232 of the Trade Expansion Act (1962) – Tariffs on steel, aluminium, and automobiles, considering a trade deficit to be a national security issue.
• Section 301 of the Trade Act (1974) – For combatting unfair trade practices, like dumping especially in relation to China.

Exemptions and Special Provisions

Certain product categories are deliberately excluded from the tariffs, either for strategic reasons or to protect domestic consumers from price shocks. These include:

• Key Electronics: Mobile phones, laptops, processors, memory chips
• Strategic Goods: Pharmaceuticals, semiconductors, copper, lumber, critical minerals, and energy products (including oil, coal, LNG).
• Goods from USMCA-Compliant Countries: Canada and Mexico remain exempt, provided goods meet rules-of-origin standards.
• Other Exempt Categories: Items under Section 1702(b) of the IEEPA, such as humanitarian goods, charity, personal baggage, publications, and donations.
• Articles from Sanctioned Countries: Goods originating from Russia, Belarus, Cuba, and North Korea are already subject to high tariffs under separate sanctions regimes and are excluded from the reciprocal tariff.

Implications and Outlook

The current US tariff regime has a wide impact not only on global trade, also financial markets, and domestic policies. While the objective of the US administration is to rebuild American industrial capacity and reduce trade deficits, the disruptive impact on global supply chains and trade relationships is already apparent. The 90-day pause on reciprocal tariffs (excluding China) appears to be a strategic move to calm markets and allow room for negotiation.

The present tariff scenario, coupled with the 90-day pause, offers a valuable opportunity for India. To make the most of this opening, India must prioritise improving the ease of doing business, rationalising its tariff regime, streamlining GST procedures, ensuring effective and pragmatic implementation of Quality Control Orders, and encouraging deregulation at the state level. It is equally important to foster collaborative value chains — even with China where strategically viable — and to expedite Free Trade Agreements with the EU and the UK.

These reforms, while challenging in the short term, are essential for boosting India's domestic manufacturing capabilities. The lower reciprocal tariffs may provide India with a relative advantage, but the real question is whether India can scale up sufficiently to substitute entrenched supply chains dominated by countries like China and Vietnam and seize this opportunity.

Author: Reena Khair, Senior Partner, Kochhar & Co. Views are personal.