Jobs, Exports, Growth At Risk: How US Tariffs May Impact India

Starting August 27, Indian exporters will face one of the harshest trade actions in recent memory - the United States will double down on duties, slapping a 50 per cent tariff on a wide range of goods from India. 

25 per cent tariff on India is already in place, imposed by the Trump administration and another 25 per cent as retaliation for India's continued purchases of Russian crude oil and military equipment, will come into effect on Wednesday.

According to the economic think tank GTRI, the impact will be sweeping. Nearly two-thirds of India's exports to the US, worth close to $60 billion, will be caught in the new tariff net, making them far costlier in American markets and eroding their competitiveness against rivals.

Former ICAI President Ved Jain explained the difficult situation India finds itself in, "The Russian oil import India is making is because it is economically viable. Now, in case we do not buy Russian oil, we will be economically inefficient, so that's not possible because the economy will suffer. So, we have to make a choice between the two evils - that we stop Russian oil, then we become economically inefficient and continue with export. On the other hand, we say, no, we will continue to be economically efficient by buying Russian oil, but we will face the music which comes to us in the shape of exports and some challenges which are there on that part."

Labour-intensive sectors such as textiles, gems and jewellery, carpets, shrimp, and furniture, are bracing for a severe shock. Small and medium businesses are especially vulnerable, and widespread job losses loom as a possibility.

Bhadresh Dodhia, a textile factory owner, highlighted the unsustainable pressures on exporters:
"To be honest it's a no-go and non-starter for any importer to take such a big hit on any imports, especially when it comes to the textile value chain - the whole supply chain is working on a very thin margin. To absorb such a heavy increase in the tariff, I am afraid it's only the consumers who will have to bear [the additional cost] eventually. For the short term, we are all waiting for a miracle to happen and an additional 25 per cent tariff to go away."

But analysts warn the damage won't be limited to India. The US itself could face economic blowback in the form of higher prices and slower growth.

Economist SP Sharma stressed the risks to the American economy, "I don't see that this is going to benefit the US economy in any way, because it will increase their inflation trajectory, which is already high, because more than 2 per cent inflation in the US is not tolerable. So, they have to bring down their inflation scenario in the coming times. If the inflation remains high, then the US economy will not be able to grow at a normal rate also. And their growth rate is not that impressive, they grew at around 1.4 per cent during the earlier Trump tenure of 2017 to 2020. So, I believe again, they will face such a slowdown if they are increasing the tariff at such rates of 25 per cent or 50 per cent on the major suppliers."

India's exports to the US, currently about $86.5 billion, are projected to shrink to $49.6 billion by FY26. While 30 per cent of exports will remain duty-free and 4 per cent will attract a 25 per cent duty, a massive 66 per cent ($60.2 billion), covering some of India's most important export categories, will be slapped with the 50 per cent tariff.

The immediate winners will be competitors such as China, Vietnam, Mexico, and Turkey, who are poised to fill the gap as US buyers look elsewhere. Moreover, the US accounts for 18 per cent of India's total goods exports, the fallout from Washington's tariffs is set to have severe economic disruption for targeted industries.