The recent decision by the United States to impose a hefty 26 percent tariff on Indian imports marks a significant shift in trade dynamics between the two countries. This bold move aims to tackle perceived trade imbalances but raises serious concerns for key sectors in India that thrive on exports. Industries such as electronics, textiles, and agriculture face new pressures, while others may find temporary reprieve. Let’s delve deeper into the implications of this tariff on various sectors and how India plans to navigate the resulting challenges.
Here’s a closer look at the industries most affected and how India is responding to these challenges
Sectors Most Affected:
1. Electronics and Gems & Jewellery
The electronics sector has been a vibrant part of India’s export landscape, with sales to the US reaching USD 13 billion in 2024. The sudden jump from a marginal 0.41 percent tariff to a substantial 26 percent is bound to hamper competitiveness. Similarly, the gems and jewellery sector, which previously enjoyed a 2.12 percent tariff, now faces steep challenges as tariffs soar to 26 percent. This rise places their market position in jeopardy, even with its USD 9 billion export value.
2. Textiles and Apparel
The textile industry, generating USD 9.6 billion in exports to the US during FY24, is another significant area at risk. The US represents a crucial market for Indian textiles, accounting for about 28 percent of exports. With products like carpets making up 58 percent of textile shipments, Indian manufacturers now risk losing ground to fierce competitors such as Bangladesh and Vietnam, who might navigate these tariffs more adeptly.
3. Automobiles and Auto Components
While the new tariff does not target automobiles directly, the sector is already burdened by a prior 25 percent duty. The announcement of the new tariff saw immediate repercussions in the stock market, with companies like Tata Motors’ Jaguar Land Rover (JLR) experiencing a 5 percent decline. Similarly, auto parts manufacturer Sona Comstar’s shares dipped by 4 percent, reflecting market unease regarding potential trade barriers.
4. Agriculture and Processed Foods
The agricultural sector is also feeling the heat. Exports of seafood and meat, totaling USD 2.58 billion, are now subject to a staggering 27.83 percent tariff. Additional duties have also impacted products such as liquor, sugar, and processed meat, creating significant hurdles for Indian exporters—especially smaller businesses trying to capture a market share in the US.
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Sectors with Temporary Relief:
1. Pharmaceuticals
Despite the turmoil in the export landscape, the pharmaceutical sector, which exports USD 12.2 billion worth of products to the US, remains unaffected by the new tariffs for the moment. However, whispers from the Trump administration hint at potential future tariffs, which could threaten India’s status as a leading supplier of generic medications.
2. Energy and Minerals
Some good news emerges from the energy sector. Crude oil and coal exports, valued at USD 9 billion, are not presently subject to the new tariffs. While this provides a welcome cushion, the looming risk of policy shifts in the future continues to cast a shadow over the sector.
India’s Major Exports to the US in CY24 (USD mn):
| Export Item | Export Value (USD mn) | % Share in Total Exports to the US |
| Electrical Machinery | 12,580 | 15.6 |
| Gems and Jewellery | 9,299 | 11.5 |
| Pharmaceutical Products | 8,875 | 11.0 |
| Nuclear Reactors, Boilers, and Machinery | 6,572 | 8.1 |
| Refined Petroleum Products | 4,465 | 5.5 |
| Articles of Iron and Steel | 2,955 | 3.7 |
| Textile Articles | 2,948 | 3.7 |
| Auto & Auto Ancillaries | 2,660 | 3.3 |
| Non-Knitted Apparel Articles | 2,591 | 3.2 |
| Organic Chemicals | 2,588 | 3.2 |
| Knitted Apparel | 2,586 | 3.2 |
| Marine Products | 1,969 | 2.4 |
| Plastic Articles | 1,631 | 2.0 |
| Miscellaneous Chemical Products | 1,243 | 1.5 |
| Carpets and Other Textile Floor Coverings | 1,196 | 1.5 |
| Furniture | 1,150 | 1.4 |
| Others | 15,465 | 19.1 |
| Total Exports to the US | 80,774 | 100.0 |
Source: Minister of Commerce and Industry
Wider Economic and Market Impact
The ripple effects of this new tariff are expected to hinder India’s manufacturing sector significantly, with analysts predicting a 50-basis-point drop in GDP growth. The Indian rupee has already felt the impact, weakening to 85.69 per US dollar as investors flee to safer assets like gold and Japanese bonds. This shift has led to sell-offs in both the metals and oil sectors.
Although the IT sector has escaped immediate repercussions from the tariffs, the potential for decreased US consumer spending could dampen demand for Indian IT services. Analysts are already adjusting their outlook for this sector, reflecting growing concerns about its future performance.