Trump’s “Liberation Day” Tariffs: A Bold Gamble That Shakes Up Global Trade

On April 2, 2025, U.S. President Donald Trump reignited his hardline trade stance with a sweeping announcement of what he calls “reciprocal tariffs”, declaring it “Liberation Day” for American workers and businesses. This new wave of tariffs introduces a baseline 10% tax on all imports, with steep additional levies on goods from countries perceived as engaging in unfair trade practices. For instance, China faces a total tariff of 34% due to an additional 34% levy on top of existing duties, while India is now subjected to 26% tariff, and the European Union (EU) is subjected to a 20% tariff. Other nations, including Japan, South Korea, and Vietnam, also face elevated tariffs ranging from 24% to 46%.

This landmark move has sent shockwaves through global markets, sparking widespread concern among economists, businesses, and world leaders. It signals a dramatic departure from multilateral trade norms and sets the stage for a potential global trade war.

What’s in the Tariff Package?

Trump’s plan is not just a symbolic gesture—it’s a sweeping overhaul of the U.S. trade regime. Here’s a breakdown of the key components:

10% across-the-board tariff on all imports.

Country-specific surcharges, bringing total tariff levels to:

• China: 34%
• India: 26%
• European Union: 20%
• Taiwan: 32%
• Japan: 24%
• South Korea: 26%
• Vietnam, Cambodia, Sri Lanka: 46%
• Mexico and Canada: largely exempt

These tariffs are part of Trump’s promise to ensure “reciprocity” in trade—meaning if a country imposes high tariffs or other barriers on American exports, the U.S. will match or exceed them.

What would be the impact on India?

While it is too early to predict the impact that the new tariffs would have on India, there are a few scenarios that can take place. However, let’s have a look at the trade first.

Country/Region	New Tariff	2024 Imports (USD bn)	CAGR Growth (2021-2024)	Est. Tariff Collections for 2024 (USD bn)	Est. Tariff Collections for 2025 (USD bn)	Additional Collection (approx.)
India	26%	91.2	6%	9.1	21.2	12.1
European Union (EU 27)	20%	605.8	7%	60.6	113.7	53.2
Mexico	Not Yet Announced	510.0	10%	51.0	55.8	4.8
China	34%	462.6	-5%	46.3	122.9	76.6
Canada	Not Yet Announced	421.2	5%	42.1	44.2	2.1
Japan	24%	152.1	3%	15.2	32.1	16.9
Viet Nam	46%	142.5	10%	14.2	57.8	43.5
Rep. of Korea	25%	135.5	11%	13.5	32.0	18.4
Taiwan	32%	118.7	14%	11.9	35.8	23.9
Cambodia	49%	13.4	13%	1.3	5.9	4.6
Bangladesh	37%	8.8	0%	0.9	2.7	1.8
Rest of the World	–	695.2	4%	–	–
Total (USD bn)		3,356.8		266.17	524.15	257.98

Data Source: UN Comtrade, US Bureau of Statistics, and Stratrich Analysis

European Union, Mexico, and China are the largest suppliers to the US and two of the regions, EU and China, have now been subjected to significantly higher tariffs. On the other hand, no changes have been announced for Mexico, but we expect a rate between 10-20% to be imposed in Mexico in the coming weeks.

Considering the US imports grow at the normal pace, Stratrich’s analysis shows that US would double its tariff collections in 2025, when compared to 2024. A major share of this additional collection coming from the European Union and China.

The US is India’s largest export market with an 18% share in India’s overall exports in 2024. The effects on India, although significant, should be looked at with a wider perspective.

• Tariffs imposed on most of the other Asian manufacturing powerhouses are significantly higher than India.
• India’s recently acquired manufacturing competitiveness and the economies of scale can be a game-changer in the upcoming months. Co-incidentally, a large chunk of companies have chosen India as a manufacturing base under the ‘China Plus One’ philosophy.
• These companies can expect relatively favorable export performance owing to the lower tariffs.

How is India Stacked against the competition?

Country/Region	New Tariff	Manufacturing Cost Index (India = 100)	Cumulative Cost Index
India	26%	100	126
European Union	20%	220	264
Mexico	Not Yet Announced (Assuming 10% tariff)	125	138
China	34%	250	335
Canada	Not Yet Announced (Assuming 10% tariff)	200	220
Japan	24%	300	372
Viet Nam	46%	83	122
Rep. of Korea	25%	275	343
Taiwan	32%	260	343
Cambodia	49%	67	100
Bangladesh	37%	50	70

Key Insights:

China and Taiwan are now over 3 times more expensive than India

• With cumulative cost indices of 335% (China) and 343% (Taiwan), these countries have become significantly costlier than India for manufacturing post-tariff.
• This makes India a more attractive alternative for businesses looking to shift production away from China. However, the technology transfer to India could be a long process and the trade disturbances might subside by then. Despite this, the Indian manufacturers are currently in a comparatively better spot.

Vietnam and Cambodia remain relatively cost-effective

• Vietnam (122%) and Cambodia (100%) still offer a cost advantage compared to India, but tariffs have eroded their edge. While both these countries had a favourable manufacturing index initially, the new tariffs shall bring them on par with India.
• Businesses seeking alternatives to China might still consider these markets, though India offers a more stable cost structure.

Global Scenarios as a Result of Trump’s Tariffs

The impact of US tariffs will depend on how long they remain in place and whether they trigger retaliatory actions from other economies. Here are three possible scenarios and their implications for India.

Scenario 1: Tariffs Stay Long-Term (3+ Years) – “The New Normal”

• The US maintains high tariffs on China, the EU, Vietnam, and other manufacturing powerhouses.
• Companies begin permanently shifting supply chains to more tariff-friendly nations like India and Mexico.
• The trade war deepens, forcing businesses to restructure global supply chains.

Implications for India:

• Massive FDI Inflows – Companies accelerate “China Plus One” strategies, choosing India for electronics, auto, and textile manufacturing.
• Trade Surplus with the U.S. – India gains market share in key sectors like IT hardware, apparel, and pharmaceuticals, boosting exports.
• Boost to Local Manufacturing Policies – Government initiatives like PLI (Production Linked Incentives) further attract more MNCs, enhancing domestic industrial growth.

Scenario 2: Tariffs are Rolled Back Quickly (12-18 Months) – “Back to Business”

• Due to political pressure, consumer inflation, and lobbying by US businesses, the government reverses most of the tariff hikes.
• Supply chains largely return to their original structure with minor adjustments.
• The global economy stabilizes, and China regains its position as the dominant exporter to the US.

Implications for India:

• Missed Opportunity for Large-Scale Manufacturing Shifts – If tariffs are lifted quickly, companies postpone long-term investments in India.
• Competitive Pressure Returns – China, Vietnam, and Taiwan reclaim their export advantage due to lower costs and established supply chains.
• Temporary Export Gains – Indian firms might see a short-term rise in exports while tariffs last but will struggle to retain those gains post-rollback.

Scenario 3: Global Retaliation – “Trade War Escalation”

• Other countries impose retaliatory tariffs on U.S. goods, leading to a global trade war.
• The EU, China, and other large economies tax U.S. exports, disrupting global trade flows.
• Companies focus on regionalization, shifting away from globalized supply chains.

Implications for India:

• Increase in Domestic Demand for Manufacturing – If global trade slows, companies invest more in India’s local supply chains, reducing dependency on imports.
• India Gains as a Non-Aligned Trade Hub – If India avoids imposing retaliatory tariffs, it could attract businesses looking for a neutral manufacturing location.
• Global Economic Slowdown Could Impact Indian Exports – If the trade war leads to a recession or weaker demand in the U.S. and EU, Indian export sectors like IT services, textiles, and auto components could see lower orders.

The Best & Worst Case for India

Scenario	Impact on India	Strategic Opportunities
Scenario 1: Tariffs Stay Long-Term	India emerges as a major manufacturing hub. Higher export demand as global firms shift production from China	Expansion of production capacity & long-term export contracts
Scenario 2: Tariffs Reversed Quickly	Short-term export boom, but competition from China & Vietnam returns	Indian manufacturers should focus on supply chain efficiency & cost competitiveness
Scenario 3: Global Trade War Escalates	Uncertain demand as global supply chains shift	Opportunity to attract companies looking for a stable, neutral base

Bottom Line

India finds itself in a uniquely advantageous position amid the shifting global trade landscape. Unlike China, Taiwan, and South Korea where high tariffs have significantly eroded cost competitiveness, India remains relatively insulated, with a lower cumulative cost index. This presents a rare opportunity for Indian manufacturers to establish themselves as a more viable and sustainable alternative for global supply chains, particularly for U.S. buyers seeking to diversify away from heavily taxed regions. The combination of moderate tariffs, improving infrastructure, and large-scale manufacturing incentives makes India an increasingly attractive destination for production.

Moreover, as global companies accelerate their “China Plus One” strategy, India stands out with its growing industrial ecosystem, skilled workforce, and government-backed manufacturing push (PLI schemes, State incentives, and trade agreements). While short-term challenges such as rising input costs and logistical hurdles remain, Indian manufacturers can capitalize on this window of opportunity by investing in capacity expansion, automation, and securing long-term contracts with global buyers. If India can scale efficiently and maintain competitive pricing, these trade shifts could position it as the next major global manufacturing powerhouse.

Trump’s Justification: A Return to Economic Nationalism

In his announcement, Trump framed these tariffs as a long-overdue correction to decades of one-sided trade deals. He accused foreign governments of manipulating currencies, subsidizing industries, and blocking U.S. exports through opaque regulatory barriers.

“We’re no longer going to be the piggy bank for the world,” Trump declared during a fiery rally. “Our workers will no longer be sacrificed on the altar of globalism.”

His administration believes these measures will:

• Revitalize domestic manufacturing
• Incentivize reshoring of U.S. companies
• Protect American jobs
• Restore economic sovereignty

Global Repercussions: Allies and Rivals Push Back

The international response has been swift—and largely critical.

• European Commission President Ursula von der Leyen condemned the move as “reckless and dangerous,” warning it could trigger a spiral of retaliatory tariffs.
• China labeled the announcement an “act of economic aggression” and is preparing its own set of countermeasures, potentially targeting American agriculture and tech sectors.
• Japan and South Korea voiced “deep regret” and pledged to support local industries through potential export relief packages.
• Even traditionally neutral nations like Vietnam and India, both key players in global supply chains, expressed concern over the long-term disruption this could cause to trade flows and investment.

While Canada and Mexico were largely spared the harshest penalties, their leaders cautioned that any shift in American trade posture could still disrupt the integrated North American economy.

Markets React: Volatility and Uncertainty

Unsurprisingly, the announcement rattled financial markets. Here’s what happened in the immediate aftermath:

• Asian stock markets tumbled overnight, with Tokyo’s Nikkei and Hong Kong’s Hang Seng posting significant losses.
• U.S. markets saw a sharp drop in after-hours trading, especially in sectors reliant on global supply chains—automotive, electronics, and consumer goods.
• Currency markets reacted with a surge in the U.S. dollar, reflecting investor bets on reduced imports but raising fears of inflationary pressure at home.

Analysts warn that these tariffs could:

• Increase costs for U.S. consumers
• Strain supply chains
• Deter foreign investment
• Delay or reverse economic recovery efforts

Business Community: Mixed Emotions, Tough Decisions

While some American manufacturers welcomed the news, hoping for a competitive edge, many large corporations are caught in the middle. For example:

• Apple and Tesla may face rising costs for components assembled abroad.
• Retailers warn that the added import duties will be passed on to consumers, potentially driving up prices in an already inflation-sensitive economy.
• Small businesses reliant on affordable foreign goods face margins squeezed tighter than ever.

Some firms are considering relocating operations back to the U.S., but experts caution that reshoring is a complex and costly process with no short-term payoff.

What’s Next? A World on Edge

The Trump administration has signaled that it’s open to bilateral deals with countries willing to lower their barriers. However, this “deal-by-deal” approach marks a break from decades of multilateralism under institutions like the WTO.

The coming weeks will be critical. World leaders will likely:

• Meet behind closed doors to coordinate responses
• Launch trade dispute filings
• Strategize tit-for-tat tariffs

Global trade could become more fragmented, with nations forming regional alliances to shield themselves from U.S. protectionism.

Conclusion: A High-Stakes Gamble

Trump’s “Liberation Day” tariffs are a watershed moment in international trade policy. Whether they lead to a manufacturing revival or spark a global economic slowdown remains to be seen. What is certain is that the world has entered a new, uncertain chapter in trade relations—one defined less by cooperation and more by confrontation.

For businesses, investors, and governments alike, the message is clear: the rules of the game have changed—and everyone must now adapt.