How will Trump’s 50% tariffs impact Indian exports?

7 Aug 2025 , 09:52 AM

HOW AN INDO-US TRADE DEAL WAS LOST?

Just a month back, India and the US were scintillatingly close to a trade deal that would exempt Indian exports from the steep reciprocal tariffs imposed by the US. The talks were delayed after the US wanted free access to India’s agriculture and dairy market; something that Indian government was unwilling to concede, due to its political sensitivity. These sectors account for over 40% of the jobs created and hence opening up these sectors to GM crops and global competition was ruled out. However, what also irked the US was that India continued to buy oil from Russia, despite the stiff sanctions for the Ukraine War.

FROM GOOD TO BAD AND BEYOND

As the trade deal got held  up, a peeved Trump accused India of being too closed and imposing too many non-monetary barriers on trade. Trump had wanted India to reduce their trade surplus with the US sharply by buying more US products and also allowing access to Indian markets. In a response, that almost looked knee-jerk, Trump decided to penalize India at two levels. First, there was the 25% base tariff on Indian imports that is effective from August 07, 2025.

Also, there will be additional 25% penal tariffs on Indian exports to the US for continuing to buy oil and arms from Russia. However, this will only apply to goods shipped from India after August 21, 2025 and reaching the US after September 17, 2025. Effectively, any goods in transit till August 21, 2025 will be exempted from the additional tax. At 50%, US tariffs on India are at par with Brazil and higher than the 30% tariffs on China.

HOW MUCH WILL THE US TARIFFS IMPACT INDIAN ECONOMY?

It would be naïve to believe that Indian economy would be immune to these tariff announcements. However, it would be useful to look at some real data. Firstly, pharmaceutical products, certain key chemicals, refined petroleum products, and semiconductors & electronics will be exempted from the new tariff regime. So, the India Apple story will not be impacted. Even assuming that the 50% tariff takes effect, the US accounts for about 20% of Indian exports and 2% of its GDP. Much of Indian exports to the US are IT exports, which are outside the purview of these tariffs.

Indian exports are not totally US dependent and they have other significant export destinations like UAE, the Netherlands, China, Singapore, UK etc. For India,  the exports of goods and services is about 22% of the economy.  That compares favourably with 87% for Vietnam and 65% for Thailand. The sectors that will be hit the hardest by these tariffs are likely to be textiles, apparel, gems & jewellery, specific chemicals etc.

WOULD INDIA BUCKLE UNDER US PRESSURE?

For the establishment, the US is one part of the macro story. It has a very strong domestic audience to satiate; and that audience is all in favour of being tough against US bullying. While India may not display any knee-jerk reactions like reciprocal tariffs, it is likely to largely ignore the threats issued by the US. If the recent decision by PM Modi to attend the upcoming SCO Summit in China and support China as the chairman of SCO is any indication, India is fully open to building bridges with China. That could be long-term accretive for India.

Most likely, India will continue its oil trade with Russia and try to get better trade terms with China. Yes, there will be irritants like China’s support to Pakistan in the recent border stand-off or their claims over parts of India. But then, in politics and economics, there are no permanent friends or permanent foes. There are also other ways to skirt such sanctions; like routing India’s export trades through other centres. The moral of the story is that India does not have to buckle under US pressure.

LET THE CRISIS NOT GO WASTE!

Historically, every crisis has led to far-reaching reforms in India. For instance, the food crisis in the 1960s led to the Green Revolution, which made India a food-surplus country. The withdrawal of tax exemptions on IT in the late 1990s, led to Indian IT becoming globally competitive and growing multi-fold in valuations. This is another such opportunity. India cannot allow another nation, however powerful, to dictate India on national interests. That is something only India can and will decide. For that to happen, 3 things are necessary.

Firstly, India must have a long term value-added export plan. India did that in autos and auto parts through the 1990s and is doing it now in electronics. Secondly, the moral of the US tariff story is that; the more value-added your export basket, the less vulnerable it is to arm-twisting. Textiles, apparel, marine products, and gems & jewellery are all based on advantages that may not be long-term sustainable. India must build long term export edge. Thirdly, build the supply chain around it. Then, this crisis will not go waste!