Author: Himani Agarwal, Sir Pratap Vidhimahavidyalaya, Jodhpur ALU Jaipur

This article explores the concept of tariffs as a tool used by governments not only to generate revenue but also to influence trade behavior and protect domestic industries. Such as the U.S.–China tariff war. The research is based on doctrinal analysis of policy documents, WTO reports, and government publications, Ministry of Commerce and Industry (Government of India) – Recent Trade and Tariff Policies.

This article analyzes India's evolving tariff strategies and their impact on economic and global relations, i.e. India raising tariffs on Chinese imports after Galwan clashes. From embracing liberalization and free trade in the 1990s to the Aatmanirbhar Bharat evolution.

Tariffs, Trade Policy, WTO Regulations, Aatmanirbhar Bharat, Free Trade Agreements (FTAs), liberalization reforms,  domestic industries, Agriculture products, National Solar Mission (NSM).

Terms like “tariffs”,“U.S. President Donald Trump’s increased 125% tariff on China" and “trade war” currently running globally. But what are tariffs? What are the effects of the increased rate? How do countries use them to protect local manufacturers, manipulate low income countries or fulfill their political agenda? Furthermore, how do all these factors impact the Indian economy, and what is the outlook of India's policy regarding tariffs?

Tariffs are a type of tax that is levied by a government. It is one of the sources that help to generate revenue. Tariffs are imposed on foreign goods and services that are imported by other countries. It is like an extra cost added to foreign products before they enter the country. For instance, if a country imposed 5% tariffs on any goods imported from B country, so 100 rupees goods have to pay an extra 5% tax, i.e. 5 rupees. Resulting in a total cost of 105 rupees paid by country B.

The most common kind of tariffs are ad valorem, which are levied as a fixed percentage of the value of the imports.  Based on the value of the goods there are also “specific tariffs,” which depend on each imported goods. A compound tariff is a combination of an ad valorem tariff and a specific tariff. 

Generally, countries imposed this to protect their domestic market manufacturers. If the price of foreign goods increases due to tariffs, domestic consumers may move toward domestic sellers. However, sometimes an increase in tariff rates can negatively affect local prices. Like if some domestic industries have global supply chains, higher tariffs on imported components can increase the overall cost of the final product. 

Therefore, it is essential to examine a country's trade policy and its attitude towards other nations."

It is important to briefly understand the historical foundations that shaped trade policy and industry in India. During the British colonial era, global tariff levels were generally low. Countries like Germany, France, Belgium, Netherlands and Japan tariffs were below 10%, except the United States average tariffs were 40-50%. British India imposed some tariffs in India (usually less than 10%) but heavily favored British imports.

The Great Depression deeply impacted India's trade. According to UN estimates, Indian exports declined 71% between 1928 and 1932 and imports declined by 65%. In response,

Tariff Board was established in 1923 to provide protection to several industries, like

protection provided to the iron and steel industry that helped save the Tata Iron and Steel Co. (TISCO) from bankruptcy

Role of Bombay Plan Post-Colonial Trade: Mercantilist vs. Socialist : In the pre-independence industrial area there were two attempts to make a ‘developmental state’. The first was  the National Planning Commission (NPC) which was set up in 1939 by the Indian National Congress with Jawaharlal Nehru as a chairman. The second was the Memorandum Outlining a Plan of Economic Development for India in two Volumes, during 1944 and 1945, popularly known as the ‘Bombay Plan’. The Janata Party came out with a policy that restricts FDI policies, forcing Coca-Cola and IBM to leave India.

The real shift began with the 1991 liberalization reforms in the post-Emergency era, The 1980s a rapidly evolving global economic landscape. The planned economies of the Communist started to show the limits of their growth. 1991 government move towards controls on industrial production, removal of licensing for imports, a massive reduction of tariffs, and maintenance of a realistic exchange rate which were closely followed by unilateral liberalization,

The Chelliah Committee, performing  review tax reforms in 1991, had recommended tariffs be reduced from 87% in 1989–90 to 25% by 1998–99  a recommendation that shaped India's journey toward free trade and global integration. Two decades after liberalization, India maintained a globalization stance, entering into multiple Free Trade Agreements (FTAs) and becoming a member in WTO negotiations.

 2014 — India has shown signs of change in its attitude towards trade. They shift away from free trade principles toward calculated use of  tariff  to protect domestic industries. Generally make a move for MADE IN INDIA.

Aatmanirbhar Bharat  campaign launched in 2020, which promotes domestic manufacturing and reduced dependency on foreign goods, India increased tariffs on sectors like electronics, solar panels, toys, and steel. 

After World War II, the General Agreement on Tariffs and Trade (GATT) was established in 1947 by 23 countries to reduce tariff and support global economic.The principle was the Most-Favoured-Nation (MFN) rule, which limited the maximum rate of tariff  However, due to GATT lacked enforcement, the WTO replaced GATT in 1995, introducing binding rules and three main tariff scenarios: most favoured nation (MFN) tariffs, preferential tariffs and bound tariffs.

1. MFN tariffs are the highest rates that WTO members can apply to each other.

2. Preferential tariffs are agreements made between countries which agree to charge a rate but not more than MFN rate. It depends on the country. 

3. Bound tariffs: Under WTO guidelines, member nations commit to “tariff bindings”, they cannot exceed maximum tariff levels unless renegotiated.

 If a country imposes more than agreed limit, it breaches Article II of GATT 1994. members can file complaints in WTO’s Dispute Settlement Body (DSB). This  non-discrimination principle aims to ensure equal trading opportunities for all members.

While the WTO can grant developing countries Special and Differential Treatment (SDT), that gives flexibility to reduce tariffs and reform subsidies. India benefits from SDT provisions, to protect domestic sectors such as agriculture and manufacturing—by imposing higher tariffs and subsidies. Such as Agriculture products Avg. MFN Tariff in 2021 are 14.8%But developing countries (like India) can keep high bound tariffs in agriculture to protect food security and farmer interests.

Africa has the highest average applied tariffs, while Europe and Oceania have the lowest.

1.Case: India - Certain Measures Relating to Solar Cells and Solar Modules,  Dispute Number: DS456,

 Complainant: United States, Respondent: India

 Third parties: EU, Brazil, Canada, China, Ecuador, Japan, Korea, Malaysia, Norway, Russia, Saudi Arabia, Taiwan, Turkey

Issue: The United States challenged India's domestic content requirements under the Jawaharlal Nehru National Solar Mission (NSM), arguing that these requirements discriminated against imported solar cells and modules.

The WTO ruled that India's domestic content requirements for solar cells and modules discriminated against imported products and were inconsistent with WTO rules. 

2. Case: European Communities - Conditions for the Granting of Tariff Preferences to Developing Countries,  Dispute Number: DS246

Complainant: India, Respondent: European Communities (now European Union)

Third parties: Bolivia, Brazil, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mauritius, Nicaragua, Pakistan, Panama, Paraguay, Peru, Sri Lanka, United States, Venezuela

Issue: India challenged the European Communities' (EC) tariff preferences granted to certain developing countries under its Generalised System of Preferences (GSP) scheme.

Judgement: The WTO ruled on the case, the EC's preferential treatment was discriminatory and allows for preferential treatment for developing countries.

Many articles, papers, and videos have appeared on this topic, which is very relevant today and impacts the economy. The theory of tariffs has been dealt with extensively as a source of revenue in the world economy, or legal literature environments shielding local industries. Jagdish Bhagwati and Paul Krugman concurred that trade liberalization assists in economic development, with strategic tariffs required to shield sectors in developing economies. Tariff obligations, and studies by Hoekman and Kostecki (2009), point out the significance of the WTO Dispute Settlement Body in ensuring fair trade practice.

The research utilized a doctrinal and analytical approach. It has been founded on secondary data derived from reports attended by policy organizations, international agreements, publications by the World Trade Organization (WTO), press releases duly issued by the government, and research literature. These included publications by the Ministry of Commerce and Industry (Government of India), WTO tariff databases, and literature from economists and legal scholars..The study examines both international and Indian perspectives on tariffs, analyzing their evolution, legal framework. 

Tariffs have affected countries exchanging goods among each other. India's history has been very special—starting from the time in colonial days to the time of liberalization in the 1990s and now moving towards the door on self-preservation, like Aatmanirbhar Bharat. 

Institutions like the WTO have strong rules, especially through the MFN principle and tariff bindings, making trade at the international level fair and uniform. These regulations aim to provide similar opportunities for each member country; however, in reality, developing countries like India are given some room for maneuver. India, making efficient use of that space, attempts to be supportive of its farmers, industries, and domestic businesses without falling foul of global obligations. Thus, India's trade is actually how to maintain the economic security of the nation while remaining true to the commitments made internationally.

1. DS456 India — Certain Measures Relating to Solar Cells and Solar Modules. https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds456_e.htm

2. DS246: European Communities — Conditions for the Granting of Tariff Preferences to Developing. Countries https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds246_e.htm

3. Dharma Kumar & Tapan Raychaudhuri eds., The Cambridge Economic History of India: Volume 2: c. 1757 – c. 1970 (Cambridge Univ. Press 1983).

4. U.N. Statistics Div., International Trade Statistics 1900–1960 (Draft) (1962).

5. World Trade Organization, Tariff Download Facility, WTO, https://ttd.wto.org/en (last visited May 3, 2025).

6. BBC News, What Is a Trade War?, BBC (Apr. 4, 2024, 10:30 AM), https://www.bbc.com/news/articles/cn93e12rypgo.

7. Ministry of Commerce & Industry, Recent Trade and Tariff Policies, Gov’t of India, https://commerce.gov.in (last visited May 3, 2025).