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The United States' decision to impose a steep 50% tariff on a wide range of Indian goods is poised to significantly impact India's export landscape, particularly affecting low-margin, labor-intensive sectors. This move, commencing on Wednesday, casts a shadow over the competitiveness of Indian goods in the American market, potentially jeopardizing numerous low-skilled jobs within India. Industries such as apparel, textiles, gems and jewellery, shrimp, carpets, and furniture, which rely heavily on exports to the US, are expected to face significant challenges. The increased tariffs render these products relatively unviable in the US market, creating an uneven playing field and potentially leading to substantial losses for Indian exporters. Simultaneously, competitor nations such as Vietnam, Bangladesh, Cambodia, and even China and Pakistan, which currently enjoy lower tariff rates from the US administration, stand to gain from India's potential setbacks in various export-oriented sectors. This shift in the competitive landscape could lead to a redistribution of market share, with these countries capitalizing on the price disadvantage faced by Indian goods. The ripple effects of these tariffs are expected to be far-reaching, impacting not only the specific industries targeted but also the broader Indian economy. Trade experts predict a substantial decline in the value of India's merchandise exports to the US in the coming years. According to an analysis by the Global Trade Research Initiative (GTRI), India's product exports to the US could plummet to $49.6 billion in FY26 from nearly $87 billion in the previous financial year. This projection underscores the magnitude of the potential economic consequences, highlighting the significant impact that the tariffs could have on India's trade balance and overall economic growth. The GTRI analysis further reveals that a significant portion of India's US exports, approximately two-thirds by value, will be subject to the 50% tariffs, effectively raising the tariff rates to over 60% in certain product categories. This dramatic increase in tariffs will undoubtedly make it more difficult for Indian exporters to compete with their counterparts in other countries, potentially leading to reduced sales volumes and diminished profitability. It is important to consider the multifaceted nature of these tariffs, including the motivations behind their implementation. The imposition of these tariffs is not solely a matter of trade policy but is also intertwined with geopolitical considerations. The additional 25% tariff, announced as a "penalty" for New Delhi's substantial purchases of Russian oil, underscores the complex relationship between trade and foreign policy. This aspect of the tariffs highlights the broader context in which these trade measures are being implemented, suggesting that they are not merely driven by economic considerations but also by political objectives. The imposition of high tariffs could lead to significant challenges for India's goods exporters, rendering them uncompetitive in the US market. The US is a crucial trade partner for India, particularly in goods, where India maintains a net trade surplus. This surplus is essential for balancing India's trade deficit with other major trading partners, such as China, Russia, and the UAE. The loss of competitiveness in the US market could exacerbate India's trade imbalances, potentially impacting the country's overall economic stability. Given the significant impact of the US tariffs on India's economy, various sectors and stakeholders are actively seeking government support to mitigate the adverse effects. The textile, gems, and jewellery sectors, recognizing the potential for job losses among semi-skilled workers, have requested COVID-19-era support to help them weather the storm. These sectors, which rely heavily on exports to the US, are particularly vulnerable to the increased tariffs. The requested support could include measures such as financial assistance, tax breaks, or other forms of government intervention designed to protect jobs and maintain competitiveness.
Several product categories are anticipated to bear the brunt of the US tariffs. These include textiles and apparel, gems and jewellery, shrimps, machinery and mechanical appliances, certain metals like steel, aluminium, and copper, organic chemicals, agriculture and processed foods, leather and footwear, handicrafts, furniture, and carpets. These sectors are particularly susceptible due to their high export dependence on the US market. Trade experts emphasize that certain sectors, such as diamond-polishing, shrimp, and home textiles, could experience a decline in sales volumes due to their heavy reliance on US trade. The US accounts for a significant portion of the revenue for India's shrimp exporters, with approximately 48% of their revenue coming from the US market. This means that the marine exports sector is likely to face a substantial decline in volumes. Similarly, the home textiles and carpets sectors, both highly export-oriented, are also at risk. Exports account for 70-75% of total sales in the home textiles sector and 65-70% in the carpets sector. Of these exports, the US accounts for a significant portion, with 60% of home textile exports and 50% of carpet exports destined for the US market. Crisil Ratings has cautioned that the earnings of export-oriented sectors like diamond polishing, shrimp, home textiles, and carpets will be affected due to a "structural shift in demand in the US, with reduced discretionary spending driven by expectations of rising inflation." This suggests that the tariffs are not the only factor impacting these sectors; broader economic trends in the US are also playing a role. The tariffs are expected to have a ripple effect on various aspects of India's economy, potentially leading to widespread job losses in the most affected sectors. This has raised concerns among industry stakeholders, who have appealed to the government for support to mitigate the anticipated economic hardship. The Gem and Jewellery Export Promotion Council (GJEPC) has expressed concerns about job losses, noting that the US tariffs would render Indian exports uncompetitive. The GJEPC has warned that the tariffs could have far-reaching repercussions across the economy, potentially disrupting supply chains, stalling exports, and threatening thousands of jobs. Given the US's position as the sector's single largest market, accounting for over US $10 billion in exports, the impact could be substantial. Exporters have urged the government to introduce a targeted scheme to alleviate the burden of the tariffs. The proposed scheme would involve duty drawback or reimbursement, covering approximately 25–50% of the new tariffs imposed on gems and jewellery exports to the US from August to December 2025.
The labor-intensive textile industry has also called for immediate cash support and a moratorium on loan repayments to withstand the shock of the US tariffs. During a key meeting at the Ministry of Textiles, the industry sought fast-tracking of free-trade-agreement (FTA) negotiations with the EU as a means of offsetting the losses in the US market. The pursuit of alternative markets through FTAs highlights the industry's proactive approach to mitigating the negative impacts of the US tariffs. Despite the widespread impact of the tariffs, some sectors are expected to remain relatively unscathed. Approximately 30% of India's exports to the US, valued at $27.6 billion in FY25, will remain duty-free. These exports include pharmaceuticals, electronics, and petroleum products. The exemption of these sectors provides a degree of stability to India's overall export profile. Pharmaceuticals, accounting for approximately $12.7 billion worth of exports to the US, are a particularly important component of the duty-free category. However, even within the exempted sectors, there are potential challenges on the horizon. Trump has warned pharmaceutical companies that they must produce within the US or face tariffs rising to 200% within two years if they do not relocate production to the US. This threat highlights the potential for further trade tensions in the future. Similarly, while a bulk of electronics exports are currently exempt from tariffs, Trump has threatened tariffs on Apple if it continues to export products from India. India's tariff-exempted electronics exports to the US in FY25 were worth $10.6 billion, including smartphones, switching and routing gear, integrated circuits, unmounted chips, and wafers for diodes and solid-state storage devices. Other items that are currently exempt from tariffs include refined petroleum fuels and products ($4.1 billion in FY25), as well as books, brochures, plastics, cellulose ethers, ferromanganese, ferrosilicon manganese, ferrochromium, and computing gear such as motherboards and rack servers. Various metals, such as unwrought antimony, nickel, zinc, chromium, tungsten, platinum, palladium, gold dore, and gold coins, are also exempt. Technically-specified natural rubber, coral, echinoderms, and cuttlebone are also included in the list of exempted items. The combination of tariffs on some sectors and exemptions on others creates a complex and dynamic trade landscape for India. The long-term impact of these measures will depend on various factors, including the government's response, the ability of Indian exporters to adapt to the new environment, and broader economic trends in both India and the United States.
Source: US tariff shock: Which sectors in India would be hit hard, which remain safe for now