Trump’s 25 per cent tariffs will have a negative impact but India can circumnavigate it by diversifying its exports
Ever since Donald Trump became the President of the United States, he has taken decisions which have disrupted the world order. No one knows how effective they would be in salvaging US economy but they have played havoc with the emerging economies. Though he had made it clear that the US would no longer allow countries to export their goods at the existing tariffs without lowering their own, the quantum of tariffs is overbearing and smacks of vindictiveness and reckless policy decisions.
India has always considered the US as a reliable trade partner but when it came to slapping tariffs on India Trump has shown no leniency. US President Donald Trump announced a 25 per cent tariff on Indian goods starting 1 August, coupled with an additional penalty over India’s continued trade with Russia in energy and defence. Experts feel that the growth impact could reach 0.4 percentage points. With India’s GDP currently expected to grow around 6.5 per cent, Trump’s tariffs may well pull it below the crucial 6 per cent threshold. The move is especially disruptive because the US is India’s largest trading partner, accounting for nearly 18 per cent of its total exports. India ships a diverse basket of goods to the US — from pharmaceutical and machinery to textiles and petroleum products. A 25 per cent levy on these would make Indian goods significantly more expensive in the US market, risking an estimated $30-33 billion drop in exports. India’s export-driven sectors, already navigating a fragile global demand environment, now face a dual challenge — loss of competitiveness in the US and potential investor uncertainty. Compounding matters is Trump’s rhetoric, which signals an intent to harden US-India economic ties. However, it is not the end of the road for the Indian economy. It is robust and resilient. It is time to diversify and make the Indian economy more competitive. Despite the blow, India has options to mitigate the fallout. First, diplomatic engagement must be prioritised. India’s trade negotiators will need to press for a bilateral resolution, leveraging the strategic importance of the US-India relationship. This is already on the horizon, though nothing concrete has been achieved so far.
Second, India could redirect its export thrust towards alternative markets such as the EU, Southeast Asia, and Africa, where demand for Indian goods is growing and tariffs remain moderate. Third, domestic policy must step in to cushion the impact. The Reserve Bank of India has room to further ease interest rates, monetary space exists to support investment and consumption. Additionally, the Government could extend targeted incentives to exporters in affected sectors, particularly MSMEs, to help them stay afloat and explore new markets. Finally, this disruption should be a catalyst for accelerating India’s structural reforms — improving trade logistics, reducing compliance costs, diversifying the export base, and investing in quality standards that enable Indian products to compete globally beyond price alone. As India absorbs this shock, it must view it not just as a diplomatic or trade skirmish, but as a turning point — a reminder that economic resilience lies in diversification, self-reliance, and agility in a volatile global order.
