US Tariffs: Implications for India’s Economy

Introduction to the Tariff Announcement

On April 2, 2025, US President Donald Trump announced a bold wave of reciprocal tariffs aimed at recalibrating trade imbalances. Notably, a hefty 27 percent tariff was slapped on Indian exports to the United States. While this decision is poised to disrupt global trade, India appears to be in a relatively advantageous position compared to other Asian nations, heralding both challenges and opportunities for various sectors of the Indian economy.

Understanding the Tariff Landscape

China is facing an astonishing 54 percent tariff, while neighboring countries like Vietnam, Bangladesh, and Thailand are also hit hard. India’s 27 percent tariff—contrary to the earlier reported 26 percent—seems relatively moderate. This disparity presents a unique window for certain key sectors in India, such as textiles and electronics, to navigate these turbulent waters with a potential competitive edge.

India’s Tariff Position: A Silver Lining?

Experts suggest that India might weather these tariffs better than more export-centric countries like China and Japan. The inward-focused nature of India’s economy provides some cushion. Sonal Badhan, an Economics Specialist at Bank of Baroda, notes, “This is likely to significantly impact US inflation and global trade dynamics. Exporters from India may face relatively less trouble since tariffs on US imports from India remain among the lowest in major emerging markets, with the exception of the Philippines.”

Ajay Srivastava, founder of the Global Trade Research Initiative, provides a detailed breakdown of the tariffs affecting India:

• A 25 percent tariff on steel, aluminum, and auto-related goods.
• Zero tariffs on pharmaceuticals, semiconductors, copper, and energy products.
• A 27 percent tariff on most other goods.

Though these tariffs represent an increase, they remain significantly lower than those imposed on India’s Asian counterparts, potentially making Indian exports more appealing in the US market.

Textiles and Apparel: A Big Win for India?

The Indian textile industry is anticipated to reap significant rewards from this tariff restructuring. With China and Bangladesh facing substantial tariff increases, Indian textile manufacturers have the perfect opportunity to expand their market share in the US.

Srivastava emphasizes, “India is in a relatively better position. The high tariffs on Chinese and Bangladeshi textiles provide an invitation for Indian manufacturers to increase production and exports.” The Indian government’s push for self-reliance in textiles, through initiatives like the Production-Linked Incentive (PLI) scheme, might further accelerate growth in this sector, as companies consider relocating manufacturing from China to India.

Electronics and Semiconductors: A New Growth Avenue?

India’s electronics sector, encompassing smartphones and telecom equipment, could also experience an upward trajectory. As Vietnam and Thailand confront rising tariffs, India may emerge as a favored alternative for global brands.

Taiwan’s 32 percent tariff on semiconductor exports might prompt companies to diversify their supply chains. India’s initiatives to bolster semiconductor manufacturing through PLI schemes may attract significant foreign investment to this growing ecosystem. However, the challenge lies in the country’s infrastructure readiness, as global chipmakers could hesitate without more robust policy support and supply chain stability.

Automobiles and Metals: Hard-Hit Sectors

Not every industry will benefit from these shifts; steel, aluminum, and auto-related goods from India now face a 25 percent tariff, resulting in less competitiveness. Major Indian exporters in the auto components sector and the metal and mining industries that rely on the US market are likely to bear the brunt.

Sankar Chakraborti, CEO of Acuité Ratings & Research Ltd., predicts direct export losses ranging between ₹3,200 – ₹3,500 crore (approximately 0.1 percent of GDP), a manageable figure that nevertheless may ripple through the economy. He warns that fluctuating global trade policies could adversely affect the Indian Rupee, widening the current account deficit if not prudently managed.

The automotive industry remains cautiously aware of the situation, with players urging immediate negotiations to address tariff-related concerns. Ayush Lohia, CEO of Zuperia Auto, notes, “While it’s too soon to react fully, we hope the US administration will consider the implications for Indian manufacturers.”

Far-Reaching Impact on Gems and Jewelry

The Indian gem and jewelry sector, like many others, must carefully navigate the evolving trade landscape. The Gem & Jewelry Export Promotion Council (GJEPC) stated that Trump’s tariffs are a significant burden for Indian exporters and US consumers alike.

They argue for the US administration to recognize the long-standing trade partnership with India, which is rooted in mutual respect and economic interests. The GJEPC anticipates severe short-term challenges to maintaining the current export volumes, urging the Indian government to expedite bilateral trade agreements to fend off the tariff impacts.

Resilience Amid Disruptions

Despite the challenges posed by these tariffs, some industry bodies remain optimistic. Hemant Jain, President of PHDCCI, underscored the strength of India’s domestic demand. “We expect the GDP impact to be minimal in the short term,” he noted, “thanks to the domestically driven consumption and the ‘Make in India’ initiative.”

The expanding trade partnerships India is forging with regimes in the Middle East, South America, and Africa also allow for a decreased reliance on American markets.

Shifts in Global Trade Dynamics

Economists caution that Trump’s tariff initiatives could decelerate global trade growth. Reports from HSBC Research suggest a drop in world export growth from 2.9 percent in 2024 to just 1.3 percent in 2025-26, largely linked to diminishing US demand and broader global uncertainties.

The historical context of Trump’s previous trade war implies the potential for a substantive downturn, likely affecting global GDP growth significantly.

Indian Exporters: A Dual-Edged Sword

While Indian exporters may enjoy some advantages in the US, they could also find themselves contending with amplified competition in markets across Europe and emerging economies as nations like China pivot their export strategies.

Kunal Chaudhary, a Tax Partner at EY India, observed, “India stands to benefit from lower US tariffs than China and Vietnam, but may find itself up against stiffer competition elsewhere.”

Suketu Thanawala, Co-Founder of StraCon Business Advisory Services, warns that the 27 percent tariff could jeopardize India’s standing in its primary export destination, urging for more diplomatic avenues to secure tariff relief.

What’s Next?

India’s forthcoming actions in response to the tariffs are pivotal in determining the trajectory of its trade future. Some important points to consider include:

• Bilateral Trade Talks with the US: Experts anticipate negotiations aimed at securing selective tariff exemptions or crafting a bilateral trade deal to safeguard critical sectors.
• Strengthening Domestic Liquidity: Ensuring that banks lend robustly to businesses could help stabilize the economy.
• Expanding Non-US Trade Partnerships: Diversifying export markets is crucial to avoid over-reliance on the American market.
• Building Robust Supply Chains: Accelerating PLI scheme implementation and infrastructure investments can bolster India’s attractiveness to global manufacturers.

Moreover, economists stress the need for bolstered domestic liquidity to support local businesses and consumers. Debopam Chaudhuri, Chief Economist at Piramal Group, stated, “Inward-focused economies like India should ensure that financial institutions can lend freely to sustain domestic consumption.”

Final Thoughts

The implications of the US’s reciprocal tariffs are manifold, presenting challenges and opportunities for India. While industries like automobiles and metals may face immediate challenges, sectors such as textiles and electronics stand to thrive. The strategic policy choices made by India in the coming months will be crucial in determining its role in the evolving global trade landscape.