The United States has implemented substantial tariffs on various Indian products starting Wednesday, posing a significant risk to India’s trade with its largest export partner.
Initially, President Donald Trump declared a 25% tariff on Indian imports. However, he subsequently issued an executive order this month to enforce an extra 25% duty owing to India’s acquisition of Russian oil, resulting in a total tariff of 50% on Indian goods by the U.S.
The Indian government anticipates these tariffs to influence $48.2 billion in exports. Authorities have cautioned that these increased duties could render exports to the U.S. economically untenable, potentially leading to job cuts and reduced economic growth.
Trade relations between India and the U.S. have grown stronger over the years, but they remain susceptible to conflicts over market entry and domestic political tensions. With India being among the swiftest-growing economies worldwide, it risks a slowdown under these circumstances.
Sectors to be impacted by US tariffs
A study from the Global Trade Research Initiative in New Delhi points out that sectors relying heavily on labor, such as textiles, gems and jewelry, leather goods, food, and automotive industries, will be most affected.
“This newly introduced tariff system delivers a strategic jolt, jeopardizing India’s long-standing foothold in the U.S., contributing to job losses in export-centric regions, and diminishing its participation in the industrial supply chain,” commented Ajay Srivastava, the founder of the think tank and a former Indian trade official.
The U.S. has for now exempted some sectors such as pharmaceuticals and electronic goods from additional tariffs, bringing some relief for India as its exposure in these sectors is significant.
Exporters fear losses
Puran Dawar, a leather footwear exporter in northern India’s Agra city, says the industry would take a substantial hit in the near term unless domestic demand strengthens and other overseas markets buy more Indian goods.
“This is an absolute shock,” said Dawar, whose business with the U.S. has grown in recent years. Dawar’s clients include the major fashion retailer Zara.
Dawar, who is also the regional chairman of the Council for Leather Exports – an export promotion body – said the U.S. should understand that the steep tariffs will hurt its own consumers.
Groups representing exporters warn that new import tariffs could hurt India’s small and medium enterprises that are heavily reliant on the American market.
“It’s a tricky situation. Some product lines will simply become unviable overnight,” said Ajay Sahai, director general of the Federation of Indian Export Organizations.
Modi vows not to yield to US pressure
The tariffs come as the U.S. administration continues to push for greater access to India’s agriculture and dairy sectors.
India and the U.S. have held five rounds of negotiations for a bilateral trade agreement, but have yet to reach a deal. That’s largely because New Delhi has resisted opening these sectors to cheaper American imports, citing concerns that doing so would endanger the jobs of millions of Indians.
Prime Minister Narendra Modi has vowed not to yield to the pressure.
“For me, the interests of farmers, small businesses and dairy are topmost. My government will ensure they aren’t impacted,” Modi said at a rally this week in his home state of Gujarat.
Modi said the world was witnessing a “politics of economic selfishness.”
A U.S. delegation canceled plans to visit New Delhi this week for a sixth round of trade talks.
India plans local reforms to cushion the blow from tariffs
The Indian government has begun working on reforms to boost local consumption and insulate the economy.
It has moved to change the goods and services tax, or consumption tax, to lower costs for insurance, cars and appliances ahead of the major Hindu festival of Diwali in October.
The government council will meet early next month to decide whether to cut taxes.
The Trade Ministry and Finance Ministry are discussing financial incentives that would include favorable bank loan rates for exporters.
The Trade Ministry is also weighing steps to expand exports to other regions, particularly Latin America, Africa and Southeast Asia. Trade negotiations underway with the European Union could gain renewed urgency as India works to reduce its dependence on the U.S. market.
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