Trade War: US tariffs cripple Indian exports and competitiveness

The Trump administration's trade negotiations with India aimed to secure better access to India’s agricultural and dairy markets. The inconsequential outcome of the talks, India’s Russian oil imports, and the potential reduction of Indian exports to the US contributed to the escalation of the trade war. Initially, the Trump administration imposed a 25% tariff on goods imported from India, effective August 1, 2025. In continuation of this development, on August 6, 2025, the US administration announced an additional punitive tariff of 25%, effective August 27, 2025, if no deal is reached. This makes India the most heavily taxed trading partner in Asia. The trade tariffs were aimed at disrupting the India-Russia energy ties and isolating Russia in the Ukraine conflict. The US is India’s top export market, accounting for 18% of its exports. This development in the trade war is expected to impact $87 billion in Indian exports, and it is predicted that the country's GDP will decline to 6%. Indian MSMEs risk losing their global competitiveness to rivals, with tariffs on India at 50% compared to China's 30% and Vietnam's 20%. The US has also issued a warning of new ‘secondary tariffs’ on countries trading with Russia. The tariffs aim to coerce India to diversify its 35% to 40% crude oil imports from Russia.
Several sectors, including engineering & automobiles, gems & jewelry, and textiles & leather, will be severely affected, and India faces a potential threat of supply chain shifts. Semiconductors, critical minerals, and the pharmaceutical sector are exempt from additional tax for now. It is estimated that Indian exports to the US will drop by 70% if tariffs reach 50%. The textile and apparel market is very vulnerable. Already, many US companies have shifted orders to Bangladesh and Vietnam, and this could further trigger job losses for millions. India is the world's largest cut diamond industry, employing 2 million workers and generating exports worth $10 billion. Approximately 32% of Indian auto parts are exported to the US. The tariffs will make many products uncompetitive. India exports 40% of its seafood, mainly Shrimp, to the USA. The fears of tariffs have resulted in farmers halting sowings. Labor-intensive industries, such as textiles, garments, automobiles, and jewelry, face a significant threat of job loss. There is a major fear that 1,00,000 to 2,00,000 people in textile hubs alone will lose their jobs. The sentiment is that most entrepreneurs are accelerating shipments before the tariff implementation date and exploring alternative diversification destinations, such as China, Russia, and Japan. India also plans to shift towards being self-reliant and to diversify its exports.
The Indian export-driven economy faces a significant challenge with the US tariffs imposed in August 2025. It has the potential to disrupt $35 billion in annual losses, impact key industries such as seafood, gems, and textiles, and collectively displace millions of jobs that significantly contribute to GDP growth. In the broader context, it will impact the global competitiveness of many products, drag GDP into a downward trajectory, and increase inflationary pressures. India needs to focus on accelerating its market diversification and enhancing domestic manufacturing, while simultaneously pursuing diplomatic negotiations. India has taken a firm stand that these tariffs are unjustified and unwarranted. India's energy imports are from 40 different countries, which are decisions based on market dynamics and should not be at the mercy of geopolitical escalations. The tariffs have prompted India to expand and diversify its exports to maintain strategic autonomy. From a broader perspective, if the trade war is not de-escalated, it could significantly strain US-India bilateral trade relationships and affect defense ties, prompting India to strengthen its relationships with Russia, China, and many other countries, thereby profoundly reorienting global power dynamics.