US Reciprocal Tax Policy and Its Application to India
The “reciprocal tax” refers to a proposed U.S. tariff strategy designed to match the import duties imposed by trading partners on American goods. Former President Donald Trump has been a vocal advocate of this approach, arguing that countries like India maintain disproportionately high tariffs on U.S. exports while enjoying lower tariffs in return (LiveMint, 2025). His administration had suggested imposing an across-the-board U.S. tariff—reportedly around 15%—on imports from nations with significant tariff imbalances.
India was singled out in these discussions, with critics pointing to its high tariff structure, particularly in sectors like agriculture and dairy. If implemented, such a reciprocal tax would dramatically increase the average U.S. tariff on Indian goods, which currently stands at around 3–4%, bringing it closer to India's tariff levels, which often exceed 15% on American imports (Economic Times, 2023). This has led to diplomatic negotiations, with Indian Commerce Minister Piyush Goyal visiting Washington in March 2025 to seek clarity on the proposed tariffs and explore potential trade-offs to mitigate the impact (Reuters, 2025).
Tariffs and Trade Regulations Affecting Dairy Products
India’s dairy sector is among the most protected worldwide due to its significance in rural employment and food security. The government imposes a 60% most-favored-nation (MFN) tariff on dairy imports, one of the highest in the world, effectively shielding domestic producers (USDA, 2023). Unlike many nations, India does not offer tariff-rate quotas (TRQs) for dairy imports, having halted such mechanisms in 2014. Additionally, stringent non-tariff barriers exist, such as a certification requirement that imported dairy products must come from cows never fed animal-derived feed. Based on Hindu dietary norms, this restriction has prevented U.S. dairy producers from penetrating the Indian market, even as they continue to lobby for greater access (USDEC, 2021).
Conversely, while the U.S. maintains high tariff walls for dairy—some reaching 188% in specific categories—the overall U.S. tariff on agricultural products is significantly lower than India's (WTO, 2023). The ongoing dispute over dairy access was one of the key factors behind the U.S. decision to revoke India’s duty-free benefits under the Generalized System of Preferences (GSP) in 2019 (USTR, 2023).
Impact on Indian Dairy Exports to the US
India has a thriving dairy industry but exports a relatively modest amount to the United States. However, trade has been growing in recent years. In the 2023-24 fiscal year, the U.S. became India’s largest market for dairy exports, importing about 94,000 tons of dairy products worth $180 million (KNN India, 2024). Key exports include ghee (clarified butter), casein, and specialty dairy ingredients.
These exports could become significantly less competitive if a steep reciprocal tax is imposed. Analysts predict that under a 15% blanket U.S. tariff scenario, Indian dairy exports would face total duties as high as 38%, up from their current lower rates (GTRI, 2025). This could erode profit margins for Indian exporters, making their products less attractive to U.S. buyers. A Global Trade Research Initiative (GTRI) study suggests that Indian dairy and shrimp exports could be among the hardest hit, losing market share if tariffs increase to the 30–40% range (Economic Times, 2025). This is particularly concerning given the price-sensitive nature of dairy products in global markets.
Effect on US Dairy Imports into India
Due to its protectionist policies, India imports very little dairy from the United States. The country is the world’s largest milk producer and generally meets its domestic demand without foreign competition. However, in deficit years, India imports dairy products like butter oil and skimmed milk powder, though typically from countries that meet its strict certification norms (USDA, 2023). In 2020, U.S. dairy exports to India totaled under $34 million, a negligible amount given India’s multi-billion-dollar dairy sector.
If reciprocal tariffs force India to reconsider its restrictions, U.S. exporters could gain significant access to this vast market. The U.S. dairy industry has long pushed for India to lower its 60% tariff and remove non-tariff barriers (USDEC, 2021). If India concedes even a fraction of its market, American milk powder, cheese, and whey protein could flood in, benefiting U.S. farmers but potentially disrupting India's dairy economy. However, if India remains firm, the reciprocal tax could result in a lose-lose scenario where U.S. dairy exporters see no gains and Indian exporters suffer from higher costs in the U.S. market.
Indian Dairy Industry Reactions and Government Mitigation Measures
India’s dairy industry has strongly opposed any relaxation of import barriers, arguing that increased foreign competition could devastate 80 million small dairy farmers (Primus Partners, 2025). This concern has led the government to draw a red line against trade liberalization in dairy, despite international pressure.
To mitigate the impact of potential U.S. tariffs, India has pursued a two-pronged approach:
- Strategic Concessions—India has offered tariff reductions in less sensitive sectors, such as motorcycles and whiskey, to placate Washington while protecting dairy (Reuters, 2025).
- Active Negotiation—Indian trade officials are engaging with their U.S. counterparts to explore compromises, such as a sectoral zero-for-zero tariff arrangement in which both countries agree to mutual reductions in certain categories (Economic Times, 2025).
If U.S. tariffs proceed as planned, India is also prepared to impose retaliatory duties on select American imports, although officials have been cautious to avoid escalation (USTR, 2023).
Wider Economic and Trade Implications for Both Countries
A U.S.- India tariff dispute could have broad economic repercussions. The U.S. is India’s largest export market, accounting for 18% of total exports, and India enjoys a sizable trade surplus. New tariffs could erode this surplus and reduce India’s overall export earnings, with some analysts estimating potential annual losses of $7 billion across all sectors if full reciprocal tariffs are applied (SBI Research, 2025).
The reciprocal tax might help the United States reduce its $45 billion trade deficit with India. Still, it would also increase costs for American businesses and consumers reliant on Indian imports (WTO, 2023). The dairy industry stands to gain only if India opens its market, but if India holds firm, no additional U.S. dairy access would be achieved. Furthermore, an escalating trade conflict could strain the growing strategic partnership between the two nations, particularly as both seek to expand trade and defense cooperation (USTR, 2023).
References
Economic Times, 2023. WTO World Tariff Profiles 2023. Economic Times, 2025. 'US’ single tariff may hit India’s farm exports most: GTRI'. GTRI, 2025. Global Trade Research Initiative report. KNN India, 2024. 'India’s Dairy Exports Decline Despite Higher Volumes'. LiveMint, 2025. 'Donald Trump’s reciprocal tariff: How US and Indian tariff rates have evolved?'. Primus Partners, 2025. 'The Price India is Paying to Protect its Dairy Sector'. Reuters, 2025. 'India's trade minister heads to US for talks as Trump tariffs loom'. SBI Research, 2025. Trade Impact Analysis. USDA, 2023. India: Dairy and Products Annual 2023. USDEC, 2021. 'India: Eliminating Unwarranted Barriers to Dairy'. USTR, 2023. 'USTR Resolves Last Outstanding WTO Dispute with India'.
