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ECONOMICS · 24 MIN · 3 APRIL 2025 · TAKARO EXPLAINS

How Tariffs Work Across Countries

What is a tariff, and why were medicines spared?

Trump declares 'Liberation Day' and slaps 26% tariffs on Indian goods. We explain how tariffs work, which Indian industries are hit hardest, why pharma got exempted, and why India might actually gain market share over China in some sectors.

How Tariffs Work Across Countries

Lens: the mechanism

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How Tariffs Work Across Countries

THE STORY

What happened, in plain words

THE SHORT ANSWER

On 2 April 2025, the US put tariffs, which are taxes on imports, on goods from almost every country. Indian goods got a 26% tariff, half of the 52% India charges on US goods. Medicines were spared, and because China and Bangladesh were taxed more, Indian exporters may even gain.

How one thing led to the next

1. IT STARTS WITH

The US announces tariffs on almost every country

2. SO

Indian goods face a 26% tax

3. THEN

Importers pay more and raise prices

What are tariffs, and what is liberation Day?

On April 2, 2025 — which Trump called "Liberation Day" — the United States President announced sweeping tariffs on almost every country that sells goods to America. A tariff is a tax that an importing country charges on goods coming in from abroad. When India exports a pen to the US worth ₹100, a 26% tariff means the importer must pay an additional ₹26 to the US government. That extra cost usually gets passed to the consumer, making the pen more expensive in American shops. If the pen is ₹100 and tariffs push the price to ₹130, it's suddenly harder to compete with a domestically made American pen.

Trump's reasoning for these tariffs is a concept called "reciprocal tariffs": if India charges US companies 52% to sell their goods in India, then Trump argues the US should charge Indian companies at least half that — 26% — to sell in America. The principle: every country should face comparable costs. Whether this actually equalises trade or simply makes goods more expensive is fiercely debated by economists. One calculation puts the cost to an average American household at an extra $5,000 per year, as everyday products from clothing to electronics and food become more expensive.

THE TARIFF BOARD

Trump held up a large physical board showing each country, what tariff that country charges the US, and what he was charging in return. For most countries, his reciprocal rate was roughly half what they charged America. India was charged 26%, which is half of India's 52% rate on US imports.

Which Indian industries are hit — and which are protected

India's largest export to the US is jewellery and precious stones — worth about $10.1 billion per year. After that comes electronic equipment ($9.9 billion) and pharmaceuticals ($7.5 billion, including generics from companies like Dr. Reddy's and Cipla). These are significant industries, and a 26% tariff makes all of them more expensive for US buyers.

However, Trump exempted pharmaceutical products from the tariff. India is the world's most important supplier of affordable generic medicines, and millions of Americans depend on them. Removing that exemption would have raised healthcare costs for ordinary American families significantly. The pharma exemption was a recognition that some Indian exports are so deeply embedded in the US economy that penalising them hurts Americans more than Indians.

THE SHORT ANSWER

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India's hidden opportunity

Here is the twist. While a 26% tariff on Indian goods sounds damaging, India's neighbours got hit much harder. China — which charges the US 67% tariffs — was hit with 34% US tariffs (on top of existing tariffs already in place from previous years, making the total much higher). Bangladesh and Sri Lanka, which export textiles and garments to the US, face even higher rates.

This means Indian manufacturers of garments, electronics, and other goods may actually become more competitive in the US market relative to Chinese and other Asian producers. If Chinese goods are now prohibitively expensive for American buyers, they will look for alternatives — and India is positioned to offer many of them. India is already in talks on a bilateral trade deal with the US that could lock in favourable terms before things change again. As Kiran put it: in a round of everyone getting tariffed, India may end up less disadvantaged than it first appears.

THE SHORT ANSWER

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4. WHICH MEANS

China and Bangladesh face even higher tariffs

5. AND THAT RESULTS IN

Indian exporters may become more competitive

WHERE IN THE WORLD

The United States, which announced the tariffs, and India, whose jewellery, electronics and medicines are among its top exports there.

TRENDING IN CLASS

CLUES

Facts to hold on to

1

The US put a 26% tariff on Indian goods, half of India's 52% on US goods.

4

Medicines were exempted, because millions of Americans rely on India's affordable generic drugs.

2

With a 26% tariff, a Rs 100 pen costs the importer Rs 126.

5

China was hit with a 34% US tariff on top of earlier tariffs.

3

India's top exports to the US are jewellery ($10.1 billion), electronics ($9.9 billion) and medicines ($7.5 billion).

THE MECHANISM

The idea that helps you read this case

The mechanism is a tax at the border. A tariff makes imported goods cost more, and that cost is usually passed on to shoppers. When some countries are taxed more than others, buyers switch to the cheaper ones, which can help a country like India even when it is taxed too.

ASK YOURSELF

  • Who really pays a tariff: the seller, the importer or the shopper?

  • Why would the US spare medicines from the tariff?

Words to know

Tariff

A tax on imported goods charged by the importing country's government; it makes imported goods more expensive and encourages consumers to buy domestic alternatives.

Liberation Day

Trump's name for April 2, 2025, when he announced sweeping tariffs on most countries' exports to the US.

Bilateral trade agreement

An agreement between exactly two countries setting out the terms under which they will trade with each other, including tariff rates.

Reciprocal tariff

A tariff designed to match (or roughly match) what another country charges on your goods; Trump's approach was to charge half the rate that each country charges the US.

Generic medicine

A medicine that is chemically identical to a brand-name drug but manufactured after the original patent expires; India is the world's largest producer of affordable generics.

Make in India

A government programme encouraging multinational companies to build manufacturing facilities in India rather than importing finished goods; it aims to create jobs and grow the economy.

THE OTHER SIDE

What the other side says

A fair look means hearing the people who disagree. Read this before you decide.

  • Tariffs are meant to protect jobs and factories at home.

  • India charges high tariffs too, to help its own industries grow through Make in India.

  • Economists fiercely debate whether reciprocal tariffs make trade fairer or just make goods dearer.

YOUR ANSWER

What do you think?

There is no single right answer here. Pick one question, use the story and a clue and explain your thinking. 

QUESTION A

Fair to shoppers?

Who gains from tariffs, and who pays? Is it fair to make goods dearer for millions to protect fewer jobs?

QUESTION C

What about Bangladesh?

Very high tariffs could hurt Bangladesh's garment industry, which employs millions. Should the US care?

QUESTION B

India's own tariffs

India charges 52% on US goods to help its own industries grow. Is that fair? Does the same logic apply to the US?

PRESENT IT IN 2 MINUTES

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What happened? Use the story and one clue (30 seconds)

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The Mechanism? Name the idea (45 seconds)

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What should be done? Give your answer (45 seconds)

DIG DEEPER

Who really pays a tariff: the country that makes a product, or the people who buy it?

TRY THIS AT HOME

Find three things at home made in another country. Imagine a 26% tariff on each: what would they cost?

HOME PRACTICE

Now try it with a case of your own.

Now try it with a case of your own.

YOUR CASE FILE

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Case Summary

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TRY IT FIRST, THEN PEEK AT THE EXAMPLE

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STEP 1

Case Summary

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STEP 1

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STEP 1

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KEY POINTS FROM THE EPISODE

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YOUR TURN

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Choose reliable news sources, and work with your parents, educators or peers to understand the case. 

Classroom Lesson Plan
Discussion questions, a hands-on classroom activity, and grade-band standards alignment — grades 4–9.
Discussion questions

A — Are Tariffs Fair to Consumers?
Educator prompt: Tariffs are usually framed as protecting domestic workers and industries. But the episode notes that an average American family will pay an extra $5,000 per year due to more expensive imported goods. Ask students: Who benefits from tariffs and who pays the price? Is it fair to make goods more expensive for millions of consumers to protect a smaller number of manufacturing jobs?

B — Is India Right to Charge High Tariffs on US Goods?
Educator prompt: India charges US companies 52% to sell their goods in India. The reason: India wants to protect and grow its own industries through programmes like “Make in India.” Ask students: Is it fair for a developing country to protect its industries from competition by richer countries? Does the same logic apply to the US?

C — What Happens to Bangladesh If US Tariffs Kill Its Garment Industry?
Educator prompt: Bangladesh's garment industry — which employs millions, including many women — exports heavily to the US. Very high US tariffs could devastate this industry. Ask students: Is it acceptable for one country's trade policy to destroy another country's economy? Should the US care about the impact on Bangladesh? What could Bangladesh do?

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