India Signals Potential Retaliation as Steel and Aluminum Tariff Dispute with US Escalates

The ongoing trade dynamics between India and the United States have taken a notable turn, with India indicating its intention to potentially impose retaliatory import duties on certain American products. This significant development stems from the persistent dispute over the US tariffs on steel and aluminum imports, measures that India views as detrimental to its export interests and inconsistent with global trade regulations.

This move highlights India’s resolve to employ available trade measures to address grievances, even as both countries are actively engaged in discussions aimed at forging a closer economic partnership through a Bilateral Trade Agreement (BTA).

Roots of the Conflict: US Steel and Aluminum Tariffs

The origin of this particular trade friction lies in the tariffs first levied by the United States several years ago on imports of steel (25%) and aluminum (10%). These duties were initially justified by the US administration on the grounds of national security under Section 232 of the Trade Expansion Act of 1962. However, this justification has been a point of contention for many of the US’s trading partners, including India, who argue that these tariffs primarily serve protectionist purposes rather than genuine security concerns.

Despite objections and calls for their removal, these tariffs on steel and aluminum have been extended multiple times, impacting exporters globally. For India, a major producer and exporter of these metals, these tariffs have presented a consistent challenge, hindering market access and affecting the competitiveness of Indian steel and aluminum products in the US.

India Takes Formal Action: Notifying the WTO

In response to the continued application and recent extension of these tariffs by the US (effective March 12, 2025, with an unlimited duration), India has decided to escalate the matter through the formal channels of the World Trade Organization (WTO). New Delhi has officially notified the WTO of its intent to suspend trade concessions that it had previously granted to the United States.

India’s stance is that the US tariffs, despite being framed under national security, effectively function as ‘safeguard measures’ – temporary trade restrictions imposed to protect a domestic industry from serious injury caused by increased imports. Under WTO rules, specifically the Agreement on Safeguards (AoS), countries imposing such measures are required to conduct consultations with affected trading partners to discuss compensation. India contends that the US has failed to engage in these necessary consultations, thereby violating its WTO obligations.

By submitting this notification to the WTO, India is exercising its right under the AoS to withdraw substantially equivalent concessions if satisfactory consultations do not occur. This is a procedural step mandated by WTO rules before a member can implement retaliatory measures in such safeguard disputes.

The Prospect of Retaliatory Duties

While the specific list of American goods that could face higher tariffs from India has not yet been publicly disclosed, the notification to the WTO confirms that the proposed action would involve increasing import duties on selected products originating from the United States.

This isn’t the first time India has considered or implemented retaliatory tariffs in response to US trade measures. In 2019, following the US decision to withdraw trade benefits under the Generalized System of Preferences (GSP) for India, New Delhi imposed retaliatory duties on 28 products imported from the US. That list included agricultural products like almonds, apples, and walnuts, as well as some chemical products. It is plausible that a new list of targeted products could include similar items or others where India’s increased tariffs would have a significant economic impact on US exporters, proportionate to the harm caused to Indian steel and aluminum exports.

According to trade experts analyzing the situation, if diplomatic consultations do not lead to a resolution or the withdrawal of the US tariffs, India’s proposed retaliatory import duties could potentially take effect within approximately 30 days from the date of the WTO notification, which was May 12th. This timeline places the potential implementation in early June.

Casting a Shadow on Bilateral Trade Talks?

This development comes at a delicate juncture for India-US trade relations. Both countries have recently expressed optimism regarding the progress of negotiations for a Bilateral Trade Agreement (BTA), with a stated goal of finalizing parts of the pact by Fall 2025. The US Treasury Secretary had even recently remarked positively on the ease of negotiating with India due to its transparent tariff structure, suggesting India could be among the first to finalize a trade deal with the current US administration.

However, India’s decision to initiate formal retaliation proceedings at the WTO introduces potential friction into these otherwise seemingly positive BTA discussions. Trade analysts suggest that while the BTA talks are broad and cover many sectors, an unresolved dispute involving retaliatory tariffs could impact the overall atmosphere and pace of the negotiations. It underscores that despite the stated commitment to closer ties, fundamental disagreements on market access and trade practices remain.

Quantifying the Impact and Seeking Reciprocity

India has quantified the economic impact of the US steel and aluminum tariffs on its exports to justify its potential retaliation. According to India’s submission to the WTO, the US safeguard measures affect approximately $7.6 billion worth of Indian exports of steel, aluminum, and derivative articles. On this value of trade, India estimates that the US collects around $1.91 billion in additional duties. India’s proposed retaliatory measures are intended to recover an equivalent amount, aiming for a level playing field.

This approach aligns with the principle of reciprocity often seen in international trade disputes, where a country suffering harm from another’s trade measure imposes equivalent restrictions. It’s a tactic used to pressure the offending country into removing its barriers.

Lessons from Global Responses and the Path Forward

India is not unique in responding to the US steel and aluminum tariffs with potential or actual retaliation. When these tariffs were first imposed in 2018, major trading partners like the European Union, Canada, and Mexico also announced or implemented their own retaliatory duties on a range of US products. These responses highlighted the widespread dissatisfaction with the US measures and underscored the interconnectedness of global supply chains, where unilateral trade actions can trigger a chain reaction.

The current situation between India and the US presents a test for their burgeoning strategic and economic partnership. The path forward likely involves continued dialogue, potentially intensified consultations within the WTO framework or bilaterally, to find a mutually acceptable resolution to the steel and aluminum tariff dispute. How this is resolved will undoubtedly influence the trajectory and potential success of the ongoing Bilateral Trade Agreement negotiations, which are crucial for realizing the ambitious goal of significantly boosting India-US trade in the coming years.

Source – Fieo