The Unprecedented Shock to Indian Exports
India‘s monumental merchandise export engine, a critical pillar of its economic growth aiming for $434 billion this year, has been struck by a seismic policy shift from the United States due to tariff India. The administration of former President Donald Trump has imposed a staggering 50% tariff on Indian goods. This punitive measure, effective immediately, serves as a retaliation against New Delhi’s continued purchases of Russian oil, which already faced an additional 25% levy.
The move sends shockwaves through the Indian export ecosystem. Overnight, the cost of Indian goods in the world’s largest consumer market has skyrocketed, threatening to erase decades of competitive advantage and painstaking market development. The allure of ‘Made in India’ products in the U.S. is predicted to rapidly decline compared to offerings from other regional manufacturing hubs that have secured more favorable terms.
The numbers underscore the immense risk. The U.S. is India’s single largest export partner. In the last fiscal year, out of India’s total goods exports, nearly 20%-amounting to a colossal $86.51 billion—were destined for American shores. This trade relationship supports millions of jobs and is a cornerstone of India’s ambition to become a global manufacturing powerhouse. This tariff India directly places that entire ambition in jeopardy.
Tariff India: A Crippling Blow to GDP and Economic Growth
The immediate financial impact is projected to be severe. Analysts at Goldman Sachs estimate the 50% tariff India will deliver a direct 0.6% hit to India’s Gross Domestic Product (GDP). This is a significant blow for a growing economy where every decimal point of growth is crucial for development and job creation.
The broader economic forecast has been dramatically downgraded. Shilan Shah, the Deputy Chief Emerging Markets Economist at Capital Economics, stated that the U.S. spending accounts for a substantial 2% of India’s entire GDP. He warned that this tariff India will have a “material” impact, forcing a revision of India’s growth projection down from a promising 7% to a more modest 6% in a “Trump-posted scenario.” Shah ominously concluded that “India’s attractiveness as an emerging manufacturing hub will be hugely undermined.” This sentiment reflects a fear that the damage will extend beyond immediate losses, scaring away future foreign investment.
Sectoral Breakdown Tariff India:: The Biggest Losers in the Trade War
The pain will not be distributed evenly across India’s export basket. The tariff India specifically target key sectors that form the backbone of its export economy, with some industries facing existential threats due to their deep reliance on the U.S. market.
1. Engineering Goods: The Foundation Crumbles
Engineering goods—encompassing auto parts, industrial machinery, and power equipment—are the crown jewel of Indian exports, having reached nearly $117 billion globally last year. The U.S. alone accounted for $19.16 billion of this, representing 16% of the sector’s market.
The new 50% tariff India is a sledgehammer to this foundation. While a previous 50% tariff India on steel was already a burden, the new blanket levy on all engineering goods removes any competitive edge. This sector, which was already a major contributor to export growth (rising 1.35% to $9.5 billion recently), now faces an immediate and severe contraction as American buyers seek cheaper alternatives.
2. Gems, Jewelry, and Apparel: A Massive Employment Crisis
The gems and jewelry sector is not just an export category; it’s a vital source of employment, supporting an estimated five million people and contributing 7% to India’s GDP. The U.S. is the destination for a staggering 33% of India’s gems and jewelry exports. Rajesh Mehta, Executive Chairman of Rajesh Exports, confirmed the sector is facing an “additional burden” and has urgently called for government relief.
Similarly, the textile and apparel industry, the third-largest in India and a massive employment generator, sends 34% of its exports to the U.S. The Confederation of Indian Textile Industry released a grave statement, noting, “Without a doubt, the new tariff rate is going to seriously test the resolve and resilience of India’s textile and apparel exporters.” They highlighted that India will lose its duty differential advantage against competitors like Vietnam and Cambodia, making it incredibly difficult to compete for orders.
3. Electronics: The Shining Star Loses Its Glow
India’s electronics sector had been a phenomenal success story, recently surpassing China as the top exporter of smartphones to the U.S., driven largely by Apple’s shift of iPhone assembly to India. This sector is also the most exposed, with 38% of its exports reliant on the U.S. market, as noted by Alexandra Hermann, a lead economist at Oxford Economics.
While smartphones and electronics were temporarily exempt from tariffs in April, providing a short-term boost, their long-term future is now shrouded in uncertainty. If the exemption is rolled back, the entire business case for manufacturing electronics for export in India could collapse, halting a flagship initiative of the government in its tracks.
4. Pharmaceuticals: Facing a Sword of Damocles Tariff India:
Perhaps the most alarming threat is to the pharmaceutical industry. While currently exempt, Trump has explicitly discussed plans to impose a “small tariff” followed by a catastrophic increase to 250% over a few years. This is a ticking time bomb for a sector that sent over $10.5 billion worth of drugs to the U.S.—accounting for 35% of its market.
The vulnerability is extreme. As Hermann points out, the high pharmaceutical sector’s US dependency leaves it completely exposed to Trump’s whims. Competing with European manufacturers without any tariff advantage would be a devastating challenge.
A Shift in Global Competitiveness Tariff India
The true damage lies in the comparative shift. The U.S. has simultaneously negotiated lower tariffs for India’s direct competitors. Vietnam’s rate was slashed from 46% to 20%. Thailand, Bangladesh, and Cambodia also saw their rates reduced to between 19-20%.
This creates a disastrous competitive imbalance. Michael Wan, a senior economist at MUFG Bank, explains the core problem: “The U.S. could more easily source for supplies from alternative import locations, but it is much harder for India to diversify away from the U.S. across different sectors.” He notes that India now faces a steeper cost wall than Vietnam in electronics, than Bangladesh in textiles, and than Europe in pharmaceuticals. If these new tariff differentials persist, “India’s export competitiveness will likely be eroded over time,” undoing years of economic progress in a single, devastating policy move.
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Reference Website:
https://www.cnbc.com/2025/08/07/indias-nearly-87-billion-exports-to-us-under-threat-due-to-trump-tariffs.html
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