India has formally reserved the right to impose retaliatory tariffs on select US products in response to the United States' steel and aluminum tariffs, a move permitted under World Trade Organization (WTO) regulations. The decision follows India's notification to the WTO, which signals its intent to act, though it may choose to address the issue through ongoing bilateral trade agreement (BTA) negotiations instead. The matter is intertwined with broader trade discussions aimed at boosting US-India commerce. While this is not India's first retaliation, the stakes are high, as both nations seek to resolve trade disputes and foster stronger economic ties.
India's WTO Notification and Its Strategic Implications
India's recent notification to the WTO Council for Trade in Goods officially reserves its right to retaliate against the United States for its steel and aluminum tariffs. This legal move does not immediately activate any new tariffs but ensures that India retains the option to retaliate in the future if negotiations fail to yield a favorable outcome. The decision allows India to explore diplomatic avenues, particularly through the ongoing bilateral trade agreement (BTA) talks between the two countries, which may offer a more amicable resolution.
The WTO’s Agreement on Safeguards (AoS) permits members to seek compensatory measures when another country imposes safeguard measures without proper consultation. In this case, India's right to impose retaliatory tariffs remains contingent on its judgment, with the country choosing whether to implement them in the near future or to resolve the matter through trade negotiations.
Background: Trade Disputes Between India and the US
This development builds on a history of tariff disputes between India and the United States. In 2018, the US imposed additional tariffs on certain steel and aluminum products, citing national security concerns. In response, India sought consultations with the WTO, which led to a temporary suspension of trade concessions by India in 2019. India later withdrew its retaliatory duties in September 2023, following a series of negotiations and the resolution of seven WTO disputes.
The current notification marks India’s reassertion of its rights, echoing past measures taken against the US and the European Union. In 2019, India levied higher tariffs on 28 US products, ranging from agricultural products like almonds and apples to chemicals, in retaliation for the US’s steel and aluminum tariffs. While the retaliatory duties were eventually rolled back, India’s strategy of leveraging WTO-sanctioned retaliation as a bargaining tool in trade negotiations remains clear.
The Bilateral Trade Agreement (BTA) and Future Negotiations
The US and India are currently engaged in discussions to finalize a Bilateral Trade Agreement (BTA), which aims to elevate trade between the two nations to USD 500 billion by 2030, up from the current level of USD 191 billion. The agreement, which will be negotiated in Washington from May 17, 2025, is viewed as an opportunity to address longstanding trade issues, including the steel and aluminum tariff dispute.
Indian Commerce and Industry Minister Piyush Goyal is set to lead a delegation of senior officials to Washington for discussions with their US counterparts. Key talks will take place between May 19 and May 22, focusing on removing trade barriers, fostering economic collaboration, and resolving issues such as the steel and aluminum tariffs. Experts suggest that India’s notification of retaliatory rights could act as a potent bargaining chip during these talks, enabling the country to secure more favorable terms.
Economic Impact: Retaliatory Tariffs and Market Reactions
The potential implementation of retaliatory tariffs could significantly impact trade flows between the two countries. India’s notification highlights the financial toll these tariffs have taken on its exports, amounting to approximately USD 7.6 billion. In response, India aims to recover the estimated USD 1.91 billion in additional duties collected by the US through retaliatory measures on select US goods.
Trade analysts suggest that such retaliatory duties could target products that impact American businesses, though the exact items have not yet been disclosed. In 2019, these retaliatory tariffs included products such as almonds, apples, and chemicals. The potential escalation of trade tensions, if tariffs are imposed, could weigh on investor sentiment and impact market stability in both countries, especially in sectors directly affected by these tariffs.
Looking Ahead: Diplomatic and Economic Considerations
As India and the US engage in intense negotiations over the BTA, the steel and aluminum tariff issue remains a focal point. While India has reserved the right to retaliate, the final outcome will likely depend on the success of the trade talks and the willingness of both countries to reach a mutually beneficial agreement. The outcome of these discussions could redefine trade relations between the two nations and pave the way for enhanced economic collaboration.
Ultimately, India’s strategic use of WTO-sanctioned retaliation underscores the broader dynamics at play in global trade, where nations increasingly leverage economic tools to resolve disputes and strengthen their positions on the world stage. The next few months will be crucial in determining whether a diplomatic resolution will emerge, or whether tariffs will once again become the primary means of settling trade disagreements.
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