In a striking and aggressive maneuver that embodies hardball trade tactics, US President Donald Trump has imposed an average 50 per cent punitive tariff on Indian goods imports, effective August 27. This action has disrupted Indian export sectors, given that the US constitutes approximately 20 per cent of total Indian exports and represents 2 per cent of its GDP. A sharp increase in tariffs will make Indian exports significantly more expensive and drastically reduce their competitiveness in the American market.
The United States stands as India’s largest trading partner, with total goods exports reaching $86.51 billion. Remarkably, around 44 per cent of these exports stem from pharmaceuticals ($10.5 billion), electronics, including smartphones and semiconductors ($14.6 billion), engineering goods and auto components ($9.3 billion), and petroleum exports ($4.09 billion), all of which are currently exempt from these punitive tariffs. It’s important to note that a 25 per cent base tariff on Indian imports was already in place, having previously ranged from 0 per cent to 10per cent. This exemption provides a crucial lifeline to these sectors, which collectively account for a significant portion of $38.49 billion in merchandise destined for the US.
In stark contrast, sectors like agriculture and food processing, textiles and apparel, diamonds-gems and gold jewelry, machinery, leather, and chemicals face severe additional tariffs. Consequently, approximately $48.02 billion remains vulnerable to an average 50 per cent duty. Various analysts predict that even a conservative 20 per cent reduction in exports could slash India’s GDP growth by one percentage point. India must take immediate action to diversify its export markets and mitigate these risks effectively.
Key Sectors Affected by the Tariffs
Agriculture & Food Processing: India currently exports $7 billion worth of agricultural produce to the US, with major items including shrimp, basmati and non-basmati rice, wheat, vegetable extracts, spices, and buffalo meat. These products together account for 60 per cent of India’s agricultural trade with the US Seafood, particularly shrimp, represents nearly 40 per cent of India’s seafood exports to the US, valued at $2 billion annually. A proposed tariff of 50 per cent is a significant increase from the previous 7 per cent. Spices worth $711 million and psyllium (isabgol) valued at $335 million are now facing this new 50per cent levy.
Textiles and Apparel: India exports $8.4 billion worth of textiles and garments annually to the US. These are highly price-sensitive commodities, and steep duties of 59 per cent on textiles, 63.9 per cent on knitted clothes, 60.3 per cent on woven garments, and 52.9 per cent on carpets could render these exports non-viable.
Diamonds, Gems, and Gold jewelry: With $10 billion worth of exports to the US for exceptionally cut and polished diamonds and gold jewelry, this sector will be significantly impacted by a 52.1 per cent tariff.
Machinery and Mechanical Appliances: The engineering sector, often regarded as India’s next major growth driver, is also vulnerable. This category includes pumps, compressors, industrial fans, and other electromechanical components worth $6.7 billion in exports. A 51.3 per cent tariff could drastically undermine India’s competitive pricing in the US market, which is already dominated by Germany, South Korea, and Japan.
Leather and Footwear: With over $2 billion in annual exports to the US, these sectors are highly susceptible to tariff increases. Countries such as Vietnam and Indonesia, which are already major players, would likely capitalise on any struggles faced by Indian exporters.
Competitors Ready to Pounce: Trump’s tariff actions are not occurring in isolation. Countries with preferential access to the US, such as Vietnam, Indonesia, Malaysia, the Philippines, Taiwan, Thailand, and Bangladesh (which have tariffs of 15-20 per cent), could benefit as Indian exporters lose their competitiveness.
India’s vulnerability is heightened by the absence of a comprehensive free trade agreement (FTA) with the US, leaving it exposed to unilateral tariff actions without any mechanisms for dispute resolution.
Way Forward
Historically, every crisis has catalysed transformative reforms in India. The food crisis of the 1960s sparked the Green Revolution, and now the recent steep tariff hike by the US demands urgent action. India must seize this opportunity to aggressively diversify its export destinations, strategically targeting emerging markets in Africa, Latin America, and the Middle East while decisively reducing its dependence on any single market.
The impending ratification of the India-UK Free Trade Agreement presents a critical opportunity for boosting exports in high-end textiles, machinery, and professional services. We must fast-track negotiations for Free Trade Agreements with Canada, the EU, and Australia to capitalise on these opportunities without delay. Moreover, India must focus inward to fortify its domestic competitiveness. A robust strategy is essential-prioritising logistics, simplifying compliance, reforming Special Economic Zones, and enhancing infrastructure quality will make Indian goods more resilient to external shocks. We need bold, sector-specific export promotion strategies backed by Production Linked Incentive (PLI) schemes, dynamic branding support, temporary subsidies, and revitalised export financing. Logistical support for labour-intensive sectors such as textiles and gems is not just advisable; it is imperative. Implementing these measures will effectively cushion immediate disruptions and position India for sustained growth.
The author is Vice-Chairman of Sonalika ITL Group and Chairman of ASSOCHAM Northern Region Development Council
