US President Donald Trump’s latest move on trade hit Indian exporters hard on Wednesday. An additional 25% tariff came into effect, pushing duties on some goods to 50%, among the highest the US has ever imposed, matching levels with Brazil.
The hike is already causing concern across industries, particularly for smaller exporters who depend heavily on the US market. Here’s a breakdown of why this happened and what it could mean for India.
Why did trade talks fall apart?
As per Reuters, India and the US held five rounds of trade negotiations since April, aiming for a deal. But talks broke down over disagreements on India’s farm and dairy sectors and its continued imports of Russian oil.
Officials on both sides say political missteps and missed cues also contributed to the breakdown.
What tariffs have been imposed?
The first 25% tariff on Indian imports came into effect on August 7. It was part of Trump’s broader plan to impose reciprocal duties on countries with high barriers to US goods. In 2024, the US ran a $45.8 billion trade deficit with India.
Just hours before the new levy, Washington added another 25%, citing India’s Russian oil imports, which now make up around 35% of the country’s total fuel imports, up from a mere 0.2% before the Ukraine war.
The extra tariff officially took effect on Wednesday, taking some duties to a staggering 50%.
Which sectors are most at risk?
The tariff hike hits garments, gems and jewellery, footwear, sporting goods, furniture, and chemicals. Thousands of small exporters could face serious losses, and jobs are at stake.
Goods already in transit before the deadline get a three-week exemption. Steel, aluminium, passenger vehicles, copper, and other items under separate US trade programmes are also spared for now.
The scale of the shock
As per the Global Trade Research Initiative (GTRI), India ships about $86.5 billion worth of goods to the US each year. Of this, roughly $60.2 billion (66%) will now face the 50% tariff. Another $3.4 billion in auto parts remains at 25%, while $27.6 billion, mostly pharma , electronics and petroleum, stays duty-free.
Ajay Srivastava, founder of GTRI, estimates exports from affected sectors could plunge 70%, collapsing from $60.2 billion to $18.6 billion. Overall shipments to the US could fall 43%, threatening hundreds of thousands of jobs across India’s export hubs.
The macroeconomic fallout
India sends roughly 18% of its total exports to the United States, equivalent to about 2.2% of GDP, with key sectors like textiles, gems and jewellery, and leather shipping 30–40% of their global output to America, according to Nomura. For companies operating on thin margins, the newly announced 50% tariff could be crippling.
Gaura Sengupta, chief economist at IDFC First Bank, estimates that the tariff could shave 0.4% off FY26 GDP growth. Sakshi Gupta, principal economist at HDFC Bank, warns the impact could push growth below 6%, saying, “We will have to significantly lower FY26 GDP growth forecast to below 6%, baking in at least a 40–50 bps hit — double from our earlier estimates.” She adds that second-round effects on private investment, domestic
manufacturing and labour markets could become a key risk.
Unemployment adds to the concern. India’s overall jobless rate was 5.6% in June, with urban unemployment at 7.1%. Millions of workers in textiles, jewellery and seafood sectors could be affected if shipments to the US decline by 20–30%, potentially destabilising politically sensitive states, according to analysts.
Tariffs could further pressure corporate earnings after a weak quarter, particularly for banks and IT firms, despite recent consumption tax cuts by Prime Minister Narendra Modi aimed at boosting the economy.
There’s also concern that the government’s fiscal plan could widen the deficit, which has already contributed to a 22-basis-point rise in benchmark yields this month.
Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership Ltd, warns that if the 50% tariff persists, the impact could reach 1% of GDP over the full year, with wider implications for monetary policy and bond yields.
Still, some support remains. The Reserve Bank of India Governor has suggested that the immediate impact of tariffs could be limited, and upcoming trade negotiations with the US offer a potential reprieve.
Varun Laijawalla, a London-based fund manager at Ninety One UK Ltd, says, “A combination of China’s AI-led rally, new equity issuances, and US-related geopolitical tensions has contributed to India’s near-term underperformance.”
How is India responding?
India is offering financial aid, higher bank loan subsidies, and support for exporters to diversify their markets.
Officials have identified nearly 50 countries where exports could grow. Trade talks with the US are reportedly ongoing despite the higher tariffs.
Has India changed its stance on Russian oil?
So far, India hasn’t directed any changes to its oil imports from Russia. Russian embassy officials in New Delhi say Moscow expects to keep supplying oil to India.
