How Trump's 50% tariff will impact on Indian economy
What's the story
The trade rift between India and the US is set to worsen from August 27, as President Donald Trump has announced a major tariff hike. The Trump administration will impose an additional 25% duty on Indian exports, taking the total levy to a whopping 50%. This move is likely to have a significant impact on India's economy and its export sectors.
Sectoral impact
Textile and apparel sector
The new tariff will affect a wide range of Indian goods exported to the US, which is India's largest export market. In FY24, India exported goods worth $86.5 billion to the US, nearly 20% of its total merchandise exports. The textile and apparel sector has already been affected by Trump's tariffs, with orders being diverted to other Asian exporters like Vietnam and Bangladesh.
Employment impact
Gems and jewelry sector
The gems and jewelry sector, which exported $9.2 billion worth of goods in FY24, has also been affected by the new tariff. Shipments have been halted, leading to a major blow to employment in the industry. Auto parts, pharmaceuticals, and electronics sectors are also feeling the heat as their margins come under pressure due to higher costs imposed by these tariffs.
Export fears
Seafood sector
The seafood sector, especially shrimp exporters who send over half their output to the US, is also worried about losses and order cancellations due to the new tariff. Analysts have warned that a prolonged tariff regime could further affect other sectors such as engineering goods, leather, and consumer durables, which are heavily dependent on the US market.
Growth forecast
Slowdown in India's economy
The Global Trade Research Initiative (GTRI) has predicted a possible 40-50% drop in India's shipments to the US, which could hurt foreign exchange earnings. Economists have also warned that these new tariffs could slow down India's economy next year. If the duties remain, FY26 growth could be 0.2-0.4% points lower than expected due to reduced investment flows from further penalties like those related to Russian oil or defense deals.
Diplomatic stance
Response from India
In response to Trump's tariff, the Ministry of External Affairs has called it "unfair and unreasonable." However, no formal countermeasures have been announced yet. PM Narendra Modi has promised protection for farmers and small exporters from the impact of these tariffs while emphasizing self-reliance. On Russian oil imports, the government maintains that energy purchases are market-driven and based on India's need for affordable supplies.