Executive Summary:

The year 2025 has witnessed a significant escalation in US trade protectionism, marked by the expansion and consolidation of existing Section 232 tariffs on steel and aluminum, strategic increases in Section 301 tariffs targeting China, and the unprecedented imposition of broad-based “Global” and “Reciprocal” tariffs under the International Emergency Economic Powers Act (IEEPA). This multi-pronged approach, largely abandoning previous strategies of negotiated exemptions, has sent shockwaves through the global economy. International organizations like the IMF and WTO project a contraction in global trade volumes and warn of significant risks to already sluggish global GDP growth, coupled with rising inflationary pressures and heightened market volatility.

For India, these developments present a complex, dual challenge. Directly, Indian exports face a 27% reciprocal tariff on many goods and a 25% Section 232 tariff on steel and aluminum products entering the US market. While exemptions for critical sectors like pharmaceuticals mitigate some damage, the overall impact on India-US trade, where India holds a substantial surplus, is negative. Indirectly, and perhaps more critically, India confronts the significant threat of trade diversion. As countries like China face steep US tariffs, there is a high risk they will redirect surplus production, particularly in steel and stainless steel, to open markets like India, potentially overwhelming domestic producers with low-cost imports.

The Indian stainless steel industry, despite strong domestic demand projections and ongoing capacity expansions, finds itself particularly vulnerable. The 25% Section 232 tariff directly impacts US market access, but the greater concern, voiced consistently by industry bodies, is the potential for import surges to depress domestic prices, erode margins, and undermine competitiveness, especially for MSMEs. While large players like Jindal Stainless show resilience, the sector faces headwinds from global price volatility and intensified competition. India’s policy response involves a delicate balance: pursuing diplomatic negotiations with the US for tariff relief while simultaneously considering and implementing trade defense measures, such as safeguard duties, to protect the domestic market from injurious imports. Navigating this complex landscape requires strategic action from both industry and government to bolster competitiveness, manage risks, and capitalize on domestic growth opportunities.

I. The Evolving US Tariff Regime: A Multi-Pronged Approach

A. Introduction

The international trade landscape underwent a seismic shift in early 2025 as the United States adopted a significantly more aggressive and broad-based protectionist stance. Moving beyond the targeted measures of previous years, the administration employed a combination of existing and emergency legal authorities – namely Section 232 of the Trade Expansion Act of 1962, Section 301 of the Trade Act of 1974, and the International Emergency Economic Powers Act (IEEPA) – to implement sweeping tariffs across a vast range of imports and trading partners. This marked a notable departure from prior practices that often involved negotiated exemptions and product-specific exclusions, signaling a fundamental change in US trade policy orientation.

B. Section 232 Tariffs (Steel & Aluminum): Expansion and Consolidation

The foundation for recent actions concerning steel and aluminum was laid in March 2018, when the US first invoked Section 232 of the Trade Expansion Act of 1962. Citing national security concerns, the administration imposed tariffs of 25% on steel imports and 10% on aluminum imports.[1, 2, 3, 4] While these tariffs were initially applied broadly, exemptions were granted to key trading partners, including Canada, Mexico, and initially the European Union, through various negotiations and agreements.[2, 4] In 2020, the scope was further expanded to include certain “derivative” articles, defined as products where steel or aluminum constituted a significant portion of the material cost, such as specific types of nails and automotive stampings.[3, 5]

However, February 2025 marked a dramatic overhaul of the Section 232 regime, effectively consolidating and expanding its reach. Effective March 12, 2025, several critical changes were implemented:

1. Elimination of Country Exemptions: All previously negotiated country-specific exemptions, quotas, and tariff-rate quotas (TRQs) were terminated. This brought major steel and aluminum exporters like Argentina, Australia, Brazil, Canada, the European Union, Japan, Mexico, South Korea, the United Kingdom, and Ukraine under the standard tariff umbrella.[1, 2, 3, 4, 5, 6, 7, 8]
2. Increased Aluminum Tariff: The tariff rate on aluminum articles and derivatives was increased from 10% to 25%, aligning it with the existing steel tariff rate.[1, 3, 4, 5, 6, 8, 9] Imports of aluminum from Russia faced a much higher 200% duty.[3, 5]
3. Termination of Exclusions and Quotas: All existing General Approved Exclusions (GAEs), which covered products consistently found not to be produced domestically, were terminated effective March 12, 2025. The process for requesting new product-specific exclusions was also rescinded. Previously granted specific exclusions were allowed to remain effective only until their original expiration date or until the specified import volume limit was reached, whichever occurred first.[2, 3, 4, 5, 6]
4. Expansion to Downstream Products: The list of covered “derivative” products was significantly expanded. While the 2020 expansion covered an estimated $457 million in imports (based on 2024 data), the new list encompassed products representing approximately $150 billion in imports.[4] For these derivative articles classified outside HTS Chapters 72 (Iron and Steel), 73 (Articles of Iron or Steel), and 76 (Aluminum and Articles Thereof), the 25% tariff applies only to the value of the steel or aluminum content, not the entire product value.[3, 4, 8] Furthermore, derivative products processed abroad using primary steel “melted and poured” or primary aluminum “smelted and cast” in the United States were exempted from these additional duties.[3, 4, 7, 8]

The stated rationale for this overhaul centered on reinvigorating the domestic steel and aluminum industries to achieve sustainable capacity utilization rates of at least 80%. The administration argued that previous exemptions and loopholes had been exploited, particularly by China, undermining the tariffs’ effectiveness and allowing evasion.[1, 6, 10] The goal was to counter perceived unfair trade practices, address global overcapacity, and bolster national security by reducing reliance on foreign metals.[1, 6]

C. Section 301 Tariffs (China): Continuation and Strategic Escalation

Operating parallel to the Section 232 measures, the US continued and intensified its use of Section 301 of the Trade Act of 1974, primarily targeting China. Section 301 empowers the Office of the United States Trade Representative (USTR) to investigate and respond to foreign trade practices deemed unfair, unreasonable, or discriminatory that burden US commerce.[11, 12]

The initial Section 301 action against China commenced in 2017-2018, focusing on concerns related to technology transfer, intellectual property (IP) theft, and innovation policies.[11, 12] This investigation led to the phased imposition of additional tariffs ranging from 7.5% to 25% on four lists (Lists 1, 2, 3, and 4A) of Chinese imports, ultimately covering goods valued at over $360 billion annually.[11, 12, 13]

Following a mandatory statutory four-year review, the USTR announced significant modifications and further escalations to these tariffs, continuing into 2025 and 2026. These changes demonstrated a strategic focus on specific sectors deemed critical to US economic competitiveness and national security:

• Targeted Sectors: Increased tariffs were directed at imports in strategic areas including electric vehicles (EVs), lithium-ion batteries (both EV and non-EV), solar cells and components (including polysilicon and wafers), semiconductors, certain steel and aluminum products (distinct from Sec 232), critical minerals (including natural graphite and tungsten), ship-to-shore cranes, and various medical supplies (syringes, needles, facemasks, respirators, medical gloves).[12, 14, 15]
• Phased Rate Hikes: Tariff rates on these targeted goods were scheduled to increase significantly, reaching levels of 25%, 50%, and in some cases, 100%. These increases were implemented in stages, with effective dates in September 2024, January 1, 2025, and January 1, 2026.[11, 12, 13, 14, 15] For example, tariffs on EVs were raised to 100%, semiconductors to 50% (effective Jan 2025), solar cells to 50%, and certain steel and aluminum products (previously at 0% or 7.5%) to 25%.[14, 15] Tariffs on medical gloves were set to reach 100% by 2026.[14]
• Limited Exclusions: While the broad exclusion process available under the initial Section 301 tariffs was largely phased out, a new, limited exclusion process was established specifically for certain machinery (under HTS Chapters 84 and 85) used in domestic manufacturing, running until March/May 2025.[11, 13, 15] Additionally, temporary exclusions were granted for specific types of solar manufacturing equipment.[13, 14]

D. 2025 Universal and Reciprocal Tariffs (IEEPA/National Emergency)

The most dramatic escalation occurred on April 2, 2025, with the declaration of a national economic emergency concerning large and persistent US goods trade deficits.[16, 17] Citing the IEEPA, the administration justified new, sweeping tariffs by arguing that these deficits, driven by a lack of trade reciprocity, disparate tariff and non-tariff barriers imposed by trading partners, and foreign economic policies suppressing domestic consumption, constituted a threat to US economic stability, manufacturing base, supply chains, and national security.[16, 17, 18, 19] The administration highlighted the disparity between the US average Most Favored Nation (MFN) tariff rate (3.3%) and those of key partners like India (17%), the EU (5%), China (7.5%), and Brazil (11.2%).[16, 17, 18]

This declaration paved the way for two major tariff implementations:

• Baseline “Global Tariff”: A 10% ad valorem tariff was imposed on effectively all imports from all countries, taking effect April 5, 2025.[1, 17, 19, 20, 21, 22, 23, 24]
• Higher “Reciprocal Tariffs”: For approximately 60 countries identified as having the largest goods trade surpluses with the US, an additional, individualized higher tariff rate was imposed, effective April 9, 2025. These rates varied significantly based on the administration’s calculation of trade imbalance, ranging from 11% to over 50% for some nations.[17, 19, 20, 21, 23, 24] Notably, India was subjected to a 27% reciprocal tariff, China 34%, and Vietnam 46%.[21, 24, 25] Countries not subject to a specific higher rate remained under the 10% baseline.

Crucially, these IEEPA/Reciprocal tariffs were levied in addition to any pre-existing tariffs, such as Section 301 duties on Chinese goods or antidumping/countervailing duties.[8, 21, 26] However, specific product categories were explicitly exempted from these new levies. Most importantly for this analysis, articles already subject to Section 232 tariffs (steel, aluminum, automobiles, and auto parts) were exempted.[16, 17, 19, 20, 25, 27] Other exemptions included pharmaceuticals, semiconductors, copper, lumber, certain critical minerals, and energy products.[16, 17, 19, 20, 25]

Canada and Mexico received distinct treatment under IEEPA, facing a 25% tariff implemented earlier (March 4, 2025), separate from the reciprocal tariff structure. Concerns were raised that this could be cumulative with the 25% Section 232 tariffs on steel and aluminum, potentially resulting in a combined 50% rate for those goods, although relief might be possible based on compliance with USMCA (United States-Mexico-Canada Agreement) rules of origin.[6, 19, 20, 28]

E. The Shifting Landscape of US Trade Policy

The confluence of these actions in 2025 signifies a marked evolution in US trade policy. The initial Section 232 and Section 301 measures, while significant, retained elements of targeted application and avenues for negotiation or exclusion. The 2025 overhaul of Section 232 removed these flexibilities, applying tariffs uniformly. The introduction of the IEEPA/Reciprocal tariffs further broadened the scope dramatically. Justified by the aggregate national trade deficit rather than specific industry or unfair practice concerns [16, 18], these tariffs applied a baseline duty globally and imposed higher, differentiated rates on dozens of countries based largely on bilateral trade balances.[19, 24] This represents a clear movement from selective protectionism towards a more comprehensive, unilateral assertion of trade restrictions impacting nearly all global partners.[19, 21]

This shift introduces significant complexity and uncertainty for global businesses. Importers now navigate a multi-layered tariff system where goods may be subject to Section 232, Section 301, and/or IEEPA/Reciprocal duties, depending on the product’s nature and origin.[6, 7, 8, 9, 20, 21, 26] The explicit exemption of Section 232 goods from IEEPA tariffs [17, 20] adds another layer of complexity, requiring careful Harmonized Tariff Schedule (HTS) classification and origin determination to assess the applicable duty burden.

Furthermore, the unilateral nature of these actions, particularly the justification of reciprocal tariffs based on perceived imbalances and the departure from the Most-Favored-Nation (MFN) principle inherent in the differentiated rates [19, 24], poses a direct challenge to the rules-based international trading system embodied by the World Trade Organization (WTO). The US administration’s rationale explicitly critiqued the WTO framework for permitting disparate MFN tariff levels among members.[16] By utilizing national security (Section 232) and national emergency (IEEPA) provisions, the US largely bypassed established WTO mechanisms for trade remedies, raising concerns about the future of multilateral trade governance.[19, 21, 22, 29]

Table 1: Summary of Key US Tariffs (April 2025 Status)

II. Impact on the Global Economy

The sweeping nature and magnitude of the 2025 US tariff escalations have reverberated through the global economy, amplifying existing uncertainties and introducing new challenges.

A. Global Trade and Growth Forecasts

International economic organizations reacted swiftly, revising down their forecasts for global trade and economic growth.

• IMF (International Monetary Fund): In its April 2025 World Economic Outlook (WEO) update, the IMF projected a 1.5 percentage point reduction in global trade volume growth for 2025 compared to its January forecast, citing the new US tariffs as the primary driver.[29, 30] It also lowered its global GDP growth forecast for 2025 by 0.4 percentage points, warning of a “significant drag” particularly if retaliatory measures escalate.[29, 30] The IMF highlighted the risk of “fragmentation” in the global trading system and its detrimental impact on efficiency and productivity growth.[29]
• WTO (World Trade Organization): The WTO’s April 2025 Global Trade Outlook expressed “deep concern” over the unilateral US actions.[22, 31] It forecast a sharp deceleration in merchandise trade volume growth for 2025, potentially falling below 1% (down from earlier projections closer to 3%), depending on the extent of retaliation and trade diversion.[22, 31] The WTO Director-General emphasized the threat to the multilateral trading system and the potential for a costly descent into protectionist spirals.[22, 31]
• OECD (Organisation for Economic Co-operation and Development): While a full updated forecast was pending, the OECD’s chief economist noted in preliminary comments that the tariffs could shave between 0.5% and 0.7% off global GDP over the next two years if fully implemented and met with retaliation, while also exacerbating inflationary pressures.[32]

B. Inflationary Pressures

A key concern is the inflationary impact of the tariffs. By increasing the cost of imported goods, the tariffs directly contribute to higher prices for consumers and businesses.[21, 24, 29]

• Direct Impact: The baseline 10% global tariff and higher reciprocal tariffs raise the cost of a vast array of consumer goods, intermediate inputs, and capital equipment.[19, 21] The consolidated 25% tariff on steel and aluminum significantly increases costs for downstream industries like construction, automotive, and appliance manufacturing.[33]
• Indirect Impact: The tariffs can lead to inflationary pressures through several channels:
  • Reduced Competition: Tariffs shield domestic producers from foreign competition, potentially allowing them to raise prices.[29]
  • Supply Chain Disruptions: Businesses may scramble to find alternative suppliers or reconfigure supply chains, incurring additional costs that are passed on.[21, 32]
  • Currency Fluctuations: Trade tensions and tariff announcements can lead to currency volatility, further impacting import costs.[30]
• Global Concern: Central banks globally expressed concern that the tariffs could complicate efforts to manage inflation, potentially requiring tighter monetary policy than previously anticipated, which could further dampen growth.[29, 32]

C. Supply Chain Reconfiguration and Trade Diversion

The tariffs are forcing businesses to re-evaluate and potentially restructure their global supply chains.[21, 24, 32]

• Shift Away from US Market: Exporters facing high US tariffs (especially China under Section 301 and countries under high reciprocal tariffs) are incentivized to seek alternative markets for their goods.[21, 31]
• Shift Away from Tariffed Sources: US importers and manufacturers are looking for suppliers in countries not subject to high tariffs or exploring domestic sourcing options, though this is often costly and time-consuming.[21, 24, 33]
• Risk of Circumvention: There is an increased risk of goods being transshipped through third countries to disguise their origin and avoid tariffs, prompting calls for stricter enforcement.[10, 34]
• Trade Diversion Concerns: A major consequence is trade diversion, where exports blocked from the US market flood into other, more open economies, potentially depressing prices and harming domestic industries in those third countries.[31, 34, 35] This is a particular concern for markets like India, ASEAN nations, and the EU, especially regarding Chinese exports of steel, aluminum, solar panels, and EVs.[34, 35]

D. Market Volatility and Investment Uncertainty

The imposition of tariffs and the uncertain prospect of retaliation have increased volatility in financial and commodity markets.[30, 32]

• Equity Markets: Global stock markets reacted negatively to the tariff announcements, reflecting concerns about corporate profits and economic growth.[30]
• Commodity Prices: Prices for targeted commodities like steel and aluminum saw initial upward pressure in the US market, while global benchmarks potentially faced downward pressure due to reduced access to the US.[33]
• Investment Decisions: The heightened uncertainty surrounding trade policy makes businesses hesitant to make long-term investment decisions, potentially delaying capital expenditures and hindering productivity growth.[29, 32] The lack of clarity on the duration of the tariffs and the potential for further escalation creates a challenging environment for planning.

E. Retaliation and Escalation Risks

A significant risk is the potential for retaliatory tariffs from affected countries, which could lead to a tit-for-tat escalation and further damage global trade.[21, 22, 29, 31]

• Likely Candidates: Major trading partners like the EU, China, Japan, and potentially blocs like ASEAN, are likely to consider or implement retaliatory measures, potentially targeting US exports in sectors like agriculture, aircraft, and technology.[21, 31]
• WTO Disputes: Many countries are expected to challenge the US tariffs at the WTO, arguing they violate international trade rules.[22, 29] However, the effectiveness of WTO dispute settlement has been hampered by the US blocking appointments to the Appellate Body.
• Economic Costs: Retaliation would impose further costs on consumers and businesses globally, disrupt supply chains even more, and increase the risk of a global recession.[29, 31]

In summary, the 2025 US tariff actions represent a significant shock to the global economic system. They are projected to reduce trade flows, dampen economic growth, fuel inflation, force costly supply chain adjustments, increase market volatility, and carry a substantial risk of escalating into a broader trade conflict. The overall impact is negative, challenging the post-WWII trend towards trade liberalization and potentially ushering in an era of greater protectionism and economic fragmentation.[22, 29, 31]