Introduction
In May 2025, the United States implemented major adjustments to its tariff policy which is a clear indication of moving toward protectionism. Companies that do business in America and especially Indian companies, will feel the strong impact of these new rules. The updates will begin in April 2025 and be used by almost all participating countries. Electric vehicles, batteries, medicines and semiconductors which are key areas for Indian companies, will be influenced by the sanctions. This change is a big deal for Indian companies and not a small adjustment. They will have to revise their legal strategies and how they work each day to follow the new rules. Indian exporters, manufacturers and investors who collaborate with American partners will find export, joint venture and investment regulations more complicated. It breaks up the main legal and policy issues linked to the U.S. tariff reforms. It focuses on how their actions match with world trade rules (such as WTO agreements) and how they coexist with Indian laws, like the Customs Act and FEMA. It also examines what happens to business partnerships and strategic plans. Being aware of how different legal systems overlap will help Indian companies maintain fairness and legality in today's global trade situation.
Background: US Tariff Reforms 2025
These 2025 reforms to U.S. tariffs are amongst the biggest changes to trade policy in recent decades. On February 13, 2025, the first sign of these changes was an important policy document called the Reciprocal Trade and Tariffs Memorandum. The main authority for these policy changes is Section 301 of the 1974 U.S.1 Trade Act plus rules concerning national security under Section 232 of the 1962 Trade Expansion Act. Also, on May 12, 2025, Presidential Order 14298 made the new system of "reciprocal tariffs" official. Most goods coming into the U.S. now have a 10% base tariff, unless a more concise one has been set up.
All these reforms relate directly to political matters. More people being against China and concerns over the fall of American manufacturing have greatly affected the policy changes. Any country that some see as unjustly trading especially those buying oil from Venezuela, Iran or Russia is now subject to tariffs that can be as high as 50%. The shift in policy is closely connected to China. Even though the US is raising the tariff on Chinese imports to 34%, it will not go into effect until August 12 of next year. The 10% base tariff will continue to be in effect until more happens. Paying close attention to particular industries highlights the degree of these reforms' focus. As an illustration, the battery and energy storage space has suffered from tariffs on Chinese goods ranging from 54% up to 104%.2 It is a major worry for Indian businesses in the electric vehicle, renewable energy and electronics sectors because a lot of their supply chains depend on goods from China.3 One more change is that shipments under $800 are no longer allowed into the U.S. tariff-free, as de minimis exemption has been removed. Currently, smaller parts must carry responsibilities, as well.
Furthermore, the U.S. has increased tariffs under Section 301 on key Chinese materials like tungsten, wafers, and polysilicon to 25% and 50% starting January 1, 2025.4 These materials are crucial for Indian companies working in tech and green energy. For Indian firms involved in semiconductors often through international partnerships, the new tariffs mean higher compliance costs and new sourcing challenges.
Legal Frameworks
1. WTO Law Implications
Legal and policy questions have arisen due to the new tariff changes that were recently announced by the United States, particularly because these changes do not line up with rules set by the World Trade Organization (WTO). Many have expressed concern that this new system may violate the most favoured nation (MFN) rule under Article I of the GATT,5 since it imposes higher tariffs only on certain countries. While it seems the same, the actual many high tariffs placed by some nations on items from China and oil from Venezuela, Iran or Russia mean countries are not treated fairly which could violate WTO rules. Washington may argue these tariffs are appropriate, using Article XXI,6 which concerns limiting trade for national security. But since tariffs are applied to many fields that are not connected, this argument becomes less effective. Because the U.S. changes are done by one country and are not part of a regional trade group, Article XXIV,7 does not apply to them.
It puts India in a very difficult position. Should it use the WTO to dispute these actions? If an agreement cannot be made, the Dispute Settlement Understanding (DSU) provides a way to bring a formal case. But, Article 3.7 of the DSU supports seeking solutions through negotiations and dialogue first. For this reason, starting with Article 4 consultations could be preferable to asking for a full WTO panel. Even though U.S. policy is changing in many areas, India could team up with other countries to develop a collective response.
2. Indian Customs Act, 1962 and Retaliatory Options
India has influence in this issue. According to the Customs Act, 1962, India has the legal power to control unfair trade practices. These sections allow India to act by increasing tariffs if foreign trade policies hurt Indian trade interests. Section 14 authorizes the government to stop dumping or subsidies by setting countervailing duties.8
It is the job of the Directorate General of Trade Remedies (DGTR) to study these situations and advise the government on suitable tariffs using specific economic data.
However, using retaliation is not as easy as it might seem. Telecom, defence and high-tech industries in India use a great deal of American equipment and technology. A rise in tariffs on U.S. goods by India could harm Indian businesses that depend on them. Because of this, a response must pay equal attention to both strategic goals and the law. Using anti-dumping or countervailing duty in India is permitted by WTO, but such measures have to follow the rules for a fair probe, informed parties and proof of economic injury to Indian companies. The DGTR is required to act in line with the WTO Agreement on the Implementation of Article VI of the GATT (Anti-Dumping Agreement).9
3. FEMA, 1999 and Cross-Border Investment Implications
Companies based in India must be aware of how their investments overseas are being affected. Indian businesses are governed by limitations in the Foreign Exchange Management Act (FEMA), 1999 and the RBI's Master Directions on direct investment when they invest or operate in another country.10
For businesses with joint ventures or wholly owned subsidiaries in the U.S., changes to their structure because of new U.S. tariffs may require them to report or get new permissions. Some examples are modifying where supplies come from, modifying what is made or increasing funds available for the business. There are some actions, including venturing into different businesses or investing more, that require the company to seek RBI consent because those actions are not already included in the automatic process. This applies most often to defence, telecom or high-tech fields and when the amount of the investment falls above certain limits. Getting FEMA approval when required matters a lot. If a report is released late or a restructuring move is not approved, companies may be charged penalties and face complications with regulators which reduces their flexibility when facing fast changes in the international market.
Impact on Indian Businesses and Legal Advisory
1. Corporate Strategy and Contractual Considerations
Since 2025, Indian companies engaged in business with the U.S. in partnerships, sales, distribution networks or credit systems will encounter new and urgent business-related legal challenges through tariff reforms. Such tariffs can seriously change the bases for agreements that deal with trade between countries.
Early on, companies must look at the force majeure and change in law clauses in their contracts to see if these tariff changes could apply to them. The clauses are often used if new laws or changes in the market make doing what was agreed difficult or not practical. The Supreme Court in India decided the case of Energy Watchdog v. The Central Electricity Regulatory Commission case, serves as a good example in this area. The Court decided that government policy or regulation changes could qualify as force majeure if they directly stop a party from performing its promises, not just because fulfilling the contract is no longer financially convenient.
Apart from force majeure, Indian companies can also look to terms from common law such as frustration of contract found in Section 56 of the Indian Contract Act, 1872 or the adjacent impossibility of performance. They are used rarely, when an unexpected situation happens and the main reason for agreeing is no longer in place. On the other hand, courts hardly use these doctrines and they usually require an extremely high level of disruption. This is why the precise language used in the contract is very important especially for sections managing law and policy changes, tariffs or issues impacting world trade.
Because U.S. tariffs affect the input costs or distribution margins of many companies in pharmaceuticals, electronics and renewable energy, some companies might have to renegotiate important contract clauses. Renegotiation could involve altering when the supply is transported, the price system or the way risks are managed. In the case where contracts are inadequate, Indian exporters may have to deal with higher costs which can make long-term contracts unprofitable for them. The unclear set of tariff policies from the U.S. means global contracts need their risk allocation policies to be reviewed again. Contracts are best reviewed for items such as: Price adjustment clauses that let companies update prices if there are changes in the cost of goods or tariffs and Protecting against the changes in currency values with currency hedging arrangements. If tariffs imposed become too great, termination or renegotiation rights give an option to leave or fix the situation. In addition, the fact that contracts will be performed in the middle of tariff implementation (April to August 2025) adds another complicated aspect. In some cases, companies have to follow different tariff rates at different stages of a single contract which can be complicated and raise problems.
For this reason, it is extremely important for Indian teams to quickly perform due diligence on all agreements that connect with the U.S. market. Those gaps found in the contract require renegotiations or extra agreements since this avoids loss of business and potential disputes.
2. Compliance and Regulatory Requirements
Indian companies have to take on extra responsibilities when dealing with the changes brought by U.S. tariff reforms. If businesses decide to design new overseas production systems or establish fresh partnerships, FEMA (Foreign Exchange Management Act) demands more stringent reporting. Money transfers across borders under any restructuring are required to be disclosed to the Reserve Bank of India (RBI) and occasionally require advance approval.
For businesses within Special Economic Zones (SEZs), some help may be provided. Many SEZs give duty and tariff exemptions to export-oriented companies. Even so, not everything in a product is protected by these statements. Therefore, businesses should make sure that their products satisfy the new rules and are now classified in the right categories. An important development being seen by many businesses particularly in electronics, auto parts and consumer goods is the removal of the de minimis exemption. Previously, shipments coming from China with a value of less than $800 were not charged U.S. tariffs. It is no longer accurate to say that. Now, any small amount of goods that you ship can face tariffs. So, businesses from India that buy these goods will need to process more paperwork, deal with stricter rules for paperwork and have advanced systems to track and group small imports properly.
It is even more complicated for Indian subsidiaries of companies based in other countries. Such businesses are required to keep up with laws in India as well as those set by their overseas group. If the nature of tariffs influences how goods move between two related companies (say a parent company and its Indian subsidiary), these companies could be required to modify their transfer pricing reports accordingly. Likewise, if the changes impact how goods or services are exchanged within the group, certain related party transactions may require you to get approval by the Companies Act, 2013.
Basically, Indian companies should be cautious and always stay ahead of problems. Businesses have to comply with both Indian rules and changes in global trade and aim to be both compliant and competitive.
3. Legal Advisory and Professional Services Implications
Having to deal with many laws at the same time provides a major chance for Indian law firms to focus on providing joined-up and filtered services. Top firms, in particular, are expected to master many fields, for example, WTO dispute resolution, Indian customs laws, following FEMA guidelines and contract laws, to help their clients cope with the updated U.S. tariff rules. With such problems reaching many areas, teamwork among trade law experts, corporate lawyers and those in regulations is extremely important.
Since tariffs can play a role in mergers and acquisitions (M&A), legal teams should be more alert to this issue. It requires analysing if trade policy changes could weaken the target company's relationships with its suppliers or customers. Both sides should agree on clear force majeure and change-in-law clauses which can shield them from sudden tariff issues that happen after they conclude the deal.
Any Indian business re-organizing because of the tariff laws might depend heavily on having sophisticated legal guidance. Choosing between setting up manufacturing in India, a third country or the U.S. involves examining tariffs and their effect on costs, investment incentives on offer and the regulations in each place. It is important for lawyers to guide clients in considering all the important factors before they select the right business structure and legal jurisdiction.
4. Policy and Trade Diplomacy Outlook
India needs to handle its approach to U.S. tariff reforms so that it balances both present-day economic needs and future diplomatic objectives in the face of a more complex and globalized marketplace. At the moment, protecting Indian businesses from tariffs hurting them plays a major role, while trade talks with the U.S. give India the opportunity to seek special or exemption treatment from the reciprocal tariffs. Working through the U.S.-India Strategic Partnership framework, both countries could create arrangements for each sector that would protect pharmaceuticals, information technology and renewable energy industries which are important for India's progress and technology.
How well these bilateral solutions do will often depend on major geopolitical concerns and not only economic estimation. By being a key partner in Quad and other Indo-Pacific alliances, India could receive better tariff terms for items it produces together with these partners, for example in the fields of semiconductors and the processing of key minerals.
Observing how India has negotiated with the United Kingdom and the European Union gives helpful examples. For example, the EU has reacted to U.S. tariffs by using dispute mechanisms in the World Trade Organization as well as by signing bilateral deals with countries involved to prevent major trade difficulties. Adopting both strategies provides key points for India's diplomatic work. Even so, because India is fast developing and advancing its technology, it needs tailored plans that match its progress and its position on the global stage. Doing what countries in similar free trade agreements have done may not cover all of India's special interests.
Conclusion and recommendations
As a result of the tariff changes in May 2025, Indian businesses and lawyers must carefully take action to solve any related problems. Given that these changes occur at the international trade, Indian legal and business levels, companies need integrated advice. It is important for Indian businesses to understand which laws are impacted by the tariffs and find suitable changes in their business strategies.
At this time, companies in India should carefully check their contracts, investments and supply lines to find out what protective measures they may or may not have. It is important for them to review the terms about unforeseen events (called force majeure clauses), adjustments needed due to laws and the conditions for cancellation, especially regarding the collection and payment of these tariffs. Working with well-known law firms helps get experienced advice on trade, company restructuring and regulations. Firms with both trade law and corporate advice experts will make a difference in the next era. They ought to watch trade changes as they happen, immediately analyse how these changes affect customers and help them respond and protect their interests as fast as they can. The best support comes from people who understand the business needs as well as the local laws everywhere.
It is wise to keep checking for any updates, like what the WTO decides about the tariffs and policy shifts under new U.S. leadership. Indian firms need to stay open-minded in their strategies and get ready for more sudden changes in trade rules. They should not just react to changes but also get smart advice from lawyers to remain competitive.
Overall, these tariff reforms bring both challenges and opportunities. Companies that quickly adapt to the new realities, handle legal complexities well, and find ways to benefit from supply chain shifts can come out stronger in the long run. But this success largely depends on having access to high-quality legal advice that connects all the different pieces into a clear business strategy.
Footnotes
1. Congressional Research Service, Section 301 of the Trade Act of 1974. U.S. Congress, Oct. 28, 2021. [Online]. Available: https://www.congress.gov/crs-product/IF11346 [Accessed: May 28, 2025].
2. M. Battery, Battery Tariffs: What You Need to Know in 2024, 2024. [Online]. Available: https://manlybattery.com/battery-tariffs/ [Accessed: May 29, 2025].
3. M. Notes, Summary of EV-Related U.S. Tariffs on Chinese Imports, 2024. [Online]. Available: https://mobilitynotes.com/summary-of-ev-related-u-s-tariffs-on-chinese-imports/ [Accessed: May 29, 2025].
4. TWAICE, Tariff Section 301: What It Means for Battery and EV Industries, 2024. [Online]. Available: https://www.twaice.com/industry-technology/tariff-section-301 [Accessed: May 29, 2025].
5. WTO, "General Agreement on Tariffs and Trade 1947," original 1947, republished online. [Online]. Available: https://www.wto.org/english/docs_e/legal_e/gatt47_e.htm . [Accessed: May 30, 2025].
6. WTO, "Article XXI – Security Exceptions: Analytical Index," [Online]. Available: https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art21_e.pdf . [Accessed: May 30, 2025].
7. WTO, "Article XXIV – Customs Unions and Free-Trade Areas: Legal Text and Commentary," [Online]. Available: https://www.wto.org/english/tratop_e/region_e/region_art24_e.htm . [Accessed: May 30, 2025].
8. Tax Management India, "Section 14 – Valuation of Goods for Customs (The Customs Act, 1962)," [Online]. Available: https://www.taxmanagementindia.com/visitor/detail_act.asp?ID=971 . [Accessed: May 31, 2025].
9. WTO, "Article VI – Anti-Dumping and Countervailing Duties: Analytical Index," [Online]. Available: https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art6_e.pdf . [Accessed: May 31, 2025].
10. TaxGuru, "RBI Master Direction – Overseas Investment Rules, 2024," 2024. [Online]. Available: https://taxguru.in/rbi/rbi-master-direction-overseas-investment-rules-2024.html . [Accessed: May 31, 2025].
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