Imposed Trump Tariffs Pose a Risk to Half of Trade Exports from US Bound for India
The Trump administration's tariffs on Indian exports, announced in August 2025, have raised concerns among exporters and the Indian government. The tariffs, affecting approximately 55% of India's merchandise exports to the United States, could potentially disrupt key export sectors and have a significant impact on India's economic growth.
GDP Impact
According to various reports, a direct hit of approximately 0.6 percentage points on growth is estimated if a full 50% tariff is applied on all Indian exports. The overall medium-term impact on GDP could potentially reach 1.0-1.1% due to indirect effects in sectors like pharmaceuticals and electronics. Some brokerages estimate a smaller near-term GDP impact of 0.1%-0.4% in fiscal 2026 due to export slowdowns and uncertainty.
Textiles and Labor-Intensive Sectors
These sectors are expected to be among the hardest hit, as tariffs could make Indian exports uncompetitive in the US, India's largest export market. This could force exporters to seek alternative markets urgently.
Pharmaceuticals
The potential inclusion of pharmaceuticals in tariff hikes could further deepen economic impacts, given the sector's export significance. U.S. buyers may look to shift contracts to other low-cost manufacturing nations like Vietnam or Mexico.
Engineering Goods and Electronics
Electronics exporters received a temporary reprieve on some tariffs, but the sector faces ongoing uncertainty, operational risks, and margin pressures, posing risks to investment and employment.
Trade Environment
The tariffs threaten a steep decline in India’s outbound shipments to the US, possibly up to 60%, destabilizing key industries, widening the trade deficit, and increasing fiscal pressures. This environment increases uncertainty in contract negotiations, supply chains, and investor confidence.
The Indian government has criticized the tariffs, arguing that the US tarred India while other nations continue importing Russian oil without penalty.
Mitigation Strategies
The Federation of Indian Export Organisations (FIEO) has urged the government to expand the Remission of Duties and Taxes on Export Products (RoDTEP) scheme for affected sectors. The Ministry of Commerce is intensifying outreach to other major markets, with preliminary talks underway to accelerate free trade agreements with the European Union and the United Kingdom.
The Indian government is also considering a formal challenge at the WTO against the Trump tariffs, building on past cases where punitive tariffs were successfully contested.
Long-Term Implications
This episode may accelerate long-term structural shifts toward regional supply chains and domestic value addition for India. The Sagarmala project's planned expansions in western ports like Mundra and Nhava Sheva were partly designed to handle increased U.S.-bound cargo, but throughput forecasts may need revision due to the persistence of Trump tariffs on Indian exports.
The World Trade Organization and the International Monetary Fund both caution that global trade is entering a period of heightened fragmentation, with major economies increasingly using tariffs as tools of foreign policy. Export credit agencies such as the Export Credit Guarantee Corporation of India (ECGC) warn that payment delays could rise by 8-10% in high-exposure sectors over the next six months.
Thousands of micro, small, and medium enterprises (MSMEs) supply intermediate goods to larger exporters. With reduced orders from U.S. buyers, many face the prospect of delayed payments or cancelled contracts.
In summary, the Trump tariffs risk significant disruption to key export sectors in India, resulting in a notable drag on GDP growth, challenges for labor-intensive and high-value industries, and destabilization of the overall trade and investment climate.
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