Last week, the White House announced yet another extension of its self-imposed 90-day deadline for enacting reciprocal tariffs, highlighting the growing recognition even within Washington that broad, across-the-board duties risk inflicting collateral damage on American households and producers. Yet this tactical reprieve belies a strategic imperative: tariffs are not an end in themselves but a mechanism for compelling trading partners to the negotiating table. By wielding the threat of elevated duties, the U.S. seeks to extract deeper market access, regulatory concessions and perhaps most critically to recalibrate bilateral imbalances. In case of India, whose exports to the United States exceeded US $83 billion in 2024 against imports of some US $46 billion, this tariff gambit poses multiple challenges. This article examines the channels through which U.S. tariffs affect the Indian economy at a broad level, assesses resilience factors, and outlines a policy roadmap for India to safeguard growth, employment and price stability.
Basically, a tariff represents a tax on imports, raising the landed cost of foreign goods for domestic consumers. In April 2025, the U.S. administration escalated duties on selected Indian products to the 26–27 percent range it was done to effectively match India’s average tariff of 17 percent on
U.S. goods while adding punitive levies to balance an estimated bilateral surplus of some US
$37 billion in India’s favor. The stated objectives by Trump administration for levying these tariffs are twofold: first, to shield American workers from “unfair” competition by making imports more expensive; and second, to penalize partner countries that register significant trade surpluses with the United States. Behind these considerations lies a broader political narrative one that conflates bilateral trade balances with domestic job losses and uses high tariffs as leverage in wider market-access negotiations.
India’s trade relationship with the United States is substantial and diversified. Pharmaceuticals alone account for over US $ 17 billion in exports, reflecting India’s growing role as a global supplier of generic medicines. Jewelry, textiles, engineering goods and electronics form the next largest categories, each collectively contributing tens of billions in export revenue. On the import side, machinery, organic chemicals, mineral fuels and precious metals dominate, underpinning investment and consumption needs within India. This two-way exchange sustains roughly
6 percent of India’s GDP and directly or indirectly supports millions of jobs across manufacturing,
services and logistics.
When duties on Indian goods rise by more than a quarter, the immediate effect is to elevate retail prices in the American market. For an average US $100 shipment of Indian apparel or electronics, the tariff alone adds nearly US $ 26 of additional cost. It’s a surcharge that U.S. distributors and retailers may pass on to consumers or absorb through margin compression. In both the cases, Indian exporters face a tradeoff either they can dilute profit margins to maintain market share or raise export prices and risk losing orders to lower-cost competitors such as Bangladesh, Vietnam or Turkey. Industry estimates suggest that U.S. tariff escalation could imperil as much as US $30– 33 billion of Indian export revenue, disproportionately impacting labor-intensive sectors like textiles and apparel, where profit margins are already thin and global competition fierce.
The human consequences of contracting orders can be severe. In Gujarat’s garment belt, tens of thousands of workers a large section of which are women rely on factory wages to support their families. Order cancellations or deferred shipments translate into shortened workweeks, wage cuts or even layoffs. Similarly, in Karnataka’s burgeoning electronics clusters, small and medium enterprises that assemble printed circuit boards or consumer devices may find their backlogs slashed, imperiling not only factory throughput but also the ancillary services like transport, packaging and component supply chains, that depend on sustained operations. While larger firms may absorb temporary shocks through financial buffers or by redirecting shipments to other markets, smaller manufacturers, which constitute the backbone of India’s export ecosystem, are particularly exposed. This situation highlights another crisis of unemployment which india is facing. If the trade gets affected severely it will eventually
Beyond the direct impact on exporters, the U.S. tariff episode has second-round effects on the broader Indian economy. Whenever a country face levies, it feels compelled to retaliate by raising duties on the imports from that country. In India’s case it can retaliate by raising duties on US machinery, chemicals or fuel imports. Such a response, however, would raise domestic input costs for downstream industries from automobile manufacturing to pharmaceuticals industries potentially fueling inflationary pressures. A rise in input costs erodes competitiveness, deters
investment and places additional burden on consumers by raising prices of everyday goods and services.
Financial markets, too, react sensitively to trade tensions. Heightened uncertainty often triggers capital outflows, exerting downward pressure on the rupee. A depreciating currency, while making exports marginally more competitive, inflates the local-currency cost of imports such as crude oil, metallurgical coal and electronic components. In an economy where energy accounts for 25 percent of the merchandise import bill, even a 5 percent rupee depreciation can add several basis points to headline inflation complicating the Reserve Bank of India’s task of reconciling growth objectives with price stability.
Furthermore, tariff volatility may dampen foreign direct investment (FDI) inflows. The investors weigh not only factor costs and market potential but also geopolitical and policy reliability. If trade relations with the United States, which accounts for a quarter of FDI inflows in India, appear fraught with sudden tariff impositions, multinational corporations may defer or scale back investments, slowing technology transfers and job creation in priority sectors like semiconductors, electric vehicles and renewable energy manufacturing which has larger implications on India’s growth story in the event of climate change inflicted challenges to the economy.
A less-appreciated dimension is trade diversion. As Chinese exports to the U.S. face their own punitive duties up to 34 percent on certain categories, exporters in China and Southeast Asia may redirect shipments destined for the U.S. through Indian ports, relabeling origin to exploit India’s comparatively lower tariff rate of 26–27 percent. While such trans-shipment schemes can momentarily boost port throughput and related revenues, they undermine domestic producers by flooding the local market with artificially low-cost goods, squeezing profit margins and depressing output in already vulnerable segments.
Despite these headwinds, India retains strategic resilience. First, compared with China’s 34 percent and Vietnam’s 46 percent tariffs, India’s duties are modest, preserving some cost advantage in the American market. Second, India’s domestic consumption economy accounting for over 90 percent of GDP dilutes dependence on exports, in contrast to Vietnam where exports comprise nearly 25 percent of economic output. Third, India’s diversified export portfolio, spanning
pharmaceuticals, services and agricultural products, provides multiple hedges against sector-specific shocks. Fourth, India is actively pursuing many trade deals with many developed countries including the US also provides a cushion to India’s exports.
To navigate this challenging economic environment, Indian policymakers should adopt a comprehensive strategy that balances immediate trade concerns with long-term competitiveness. A key priority for India should be the acceleration of bilateral trade negotiations with the United States. However, any early-stage agreement must be pursued without compromising India’s long- term policy autonomy. In particular, proposals to reduce tariffs on sensitive agricultural products warrant cautious scrutiny, as such concessions could have adverse implications for rural livelihoods and food security. Indian negotiators must adopt a strategic and calibrated approach which safeguards the interests of domestic producers while securing improved market access for India’s labor-intensive exports. This should be done without yielding to coercive tactics or asymmetrical demands from the U.S. side. At the same time, India must diversify its export markets by deepening trade ties with the EU, Middle East, Africa, and ASEAN nations. Fast- tracking existing free trade agreements and leveraging trade missions and digital platforms can help Indian businesses tap into high-growth markets and reduce dependence on any single economy.
Domestically, India must enhance its industrial competitiveness by refining the “Make in India” initiative by streamlining regulations, improving logistics, and directing subsidies toward productivity upgrades like automation, workers training, and global quality standards. Financial stability is equally critical, the exchange rate volatility should be managed through measured interventions, while fiscal policy should focus on reducing deficits to maintain investor confidence and keep long-term borrowing costs in check.
Finally, strengthening customs enforcement, applying rules of origin (ROO) rigorously, and leveraging data analytics and international cooperation are essential to curb illicit trade practices such as transshipment, where goods are rerouted through third countries to bypass tariffs. adequate safeguards can prevent such backdoor entry of goods which can distort market competition and undermine the viability of domestic industries.
U.S. tariff extensions represent a tactical pause, not a strategic retreat. For India, the imperative is to convert adversity into opportunity by leveraging diplomatic acumen, policy innovation and market diversification to sustain export growth, protect livelihoods and uphold macroeconomic stability. The next six to twelve months will test India’s capacity to respond decisively: by preserving order books, stabilizing prices and retaining investor confidence, India can weather this storm and emerge with a more resilient and globally integrated economy.
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