All is not well

This tariff attack on India will surely wound severely key sectors that primarily export to the USA. Mass unemployment and serious fluctuations in the economy are being speculated.

By Rakesh Agrawal 

On August 27, 2025, Donald Trump apparently ‘punished’ India by imposing an additional tariff on Indian goods for importing Russian crude oil. The move raised the total tariff to 50% on most Indian exports to the US.

Ironically, China was mildly punished, as only a 30% tariff was imposed on it. Canada was burdened with a 35%, while Mexico had a 25 per cent tariff, Vietnam had a 20% tariff, and Japan and the EU countries had a 15% tariff. 

The US is India’s largest export market, accounting for 18–20% of India’s total merchandise exports ($87–129 billion in 2024). The tariffs are expected to reduce India’s GDP growth by 0.2–0.6% and cause export losses of $5–8 billion, particularly affecting several labour-intensive sectors.

The move has been described as a “severe setback,” with potential job losses in the millions, order cancellations, and reduced competitiveness against countries like Vietnam and Bangladesh.

This tariff attack on India will surely wound severely key sectors that primarily export to the USA. Here are some of them:

Gems and Jewellery

The gems and jewellery sector, which contributes $10–12 billion annually to US exports (approximately 30–33% of India’s global gems and jewellery exports), face severe disruption. The 50% tariff (up from 0% on cut and polished diamonds and 5–7% on gold jewellery) could lead to a 15% export decline ($1.8–2 billion loss).

Industry leaders warn of a doomsday scenario, with supply chain disruptions, delayed shipments, and job losses for approximately 5 million workers. The sector’s competitiveness is threatened by rivals such as Israel, with some exporters relocating their operations to Dubai or Turkey. However, high-value studded jewellery may remain resilient due to India’s craftsmanship.

Carpets

Carpets, part of India’s $10.3 billion textile exports to the US, face tariffs of up to 52.9%. This labour-intensive sector, centred in regions like Bhadohi, Uttar Pradesh, risks significant order cancellations and business closures. Exporters with thin margins say it will be impossible to absorb costs.

The sector faces competition from Bangladesh and Vietnam (with lower tariffs of 37% and 46%, respectively), potentially leading to mass unemployment.

Clothes (Textiles and Apparel)

The textiles and apparel sector, valued at $10.3 billion in US exports, faces tariffs ranging from 50% to 63.9% (with knitted apparel at 63.9% and woven apparel at 60.3%). This affects major exporters with a projected 20–30% decline in exports and job losses in MSMEs.

American buyers, including Walmart, GAP, and JCPenney, have reportedly paused consignments, demanding discounts of 25–30 per cent. Manufacturers and exporters in major textile-producing centres like Tirupur and Coimbatore in Tamil Nadu, Surat in Gujarat, Ludhiana in Punjab, and Varanasi in Uttar Pradesh are losing their sleep, as it would surely impact their exports to the USA.  

Drugs (Pharmaceuticals)

The flourishing pharmaceutical sector in India, exporting $9–12.7 billion to the U.S. (35–50% of India’s global pharma exports), is currently exempt from the 50% tariff, providing temporary relief. However, Trump has threatened future tariffs of 150–250% to boost US production, which could devastate the sector if implemented. The US has already shown its intent by slapping a 100 per cent tariff on Pharma imports.

Seafood/Shrimp: Exports worth $2–$ 2.24 billion (40% to the US) face tariffs of 33–58.26%, risking a decline of over 20% and job losses in states like Kerala.

Chemicals: $2.7 billion in organic chemical exports face 54% tariffs, threatening competitiveness.

Auto Parts: $2.8–9 billion in exports face 25–50% tariffs, with a projected 12% decline, impacting MSMEs.

Apples, saffron, and dry fruits: From the Kashmir Valley and Himachal Pradesh, and dry fruits worth more than $1 billion are exported to the USA every year. The horticulture industry has estimated that around Rs 8000 to Rs 9000 crore (approximately $960 million to $1.08 billion) is exported from Kashmir alone.

India’s Strategy

To counter the US tariff onslaught, the Indian government is negotiating a bilateral trade agreement to secure exemptions, exploring market diversification in Europe and the Middle East, and considering the imposition of retaliatory tariffs.

The prime minister, in his usual dramatic style, called for promoting swadeshi (indigenous -- Made in India) products. His 2014, ‘Vocal for Local’ slogan received a renewed push to counter the US tariffs. The PM has framed atmanirbhar (being self-sufficient) as a patriotic response to external pressures, citing Mahatma Gandhi’s swadeshi movement and emphasising that local industries must be promoted. How far this slogan will succeed in the era of globalisation and liberalisation, remains a mystery.

Many industry representatives reportedly want India to impose a reciprocal tariff on American clothing brands like Levi's and Wrangler jeans, as well as California almonds and walnuts. But, will the ruling dispensation in New Delhi, that has refused to utter a word of protest when  ‘illegal’ Indian immigrants were deported back in handcuffs and chains, respond in this tit-for-tat manner is doubtful.

In 2024-25, India imported more than it exported, with total imports estimated at $915.19 billion and total exports at $820.93 billion, resulting in a trade deficit. While India's exports reached an all-time high, driven significantly by the services sector, its imports also increased, resulting in a negative trade balance for last fiscal. 

During the April-June 2025 quarter, India's total exports (merchandise and services) were estimated at $210.31 billion, while total imports were $230.62 billion, resulting in an overall trade deficit of approximately $20.31 billion.

This trade gap is likely to increase, as Trump’s tariff attack on India is expected to reduce exports to the USA, while finding other overseas markets is more a pipedream than a reality.

When India relies on imported inputs to make toothpaste, shampoo, drugs, walking sticks, and high-tech devices—including smartphones—the "Made in India" label seems to become meaningless. The question remains: which countries would accept our products which are merely assembled in India?

There are speculations that this is going to whip India’s economy, even more, that has been declared ‘dead’ by none other than Trump.  Massive job losses and serious fluctuations in the Indian economy is are expected.

As if the tariff punishment wasn’t enough, the Trump Administration has gone ahead to deliver a blow to the agriculture sector, a source of livelihood for 46 per cent of Indians. It is pushing India to open its agricultural markets to GM products, such as corn and soybeans from the US.

The existing adoption of GM Bt cotton in India provides context for understanding the potential implications of GM mustard and brinjal. Not just this, Trump is reportedly pushing the pliable government of India to accept the import of cotton from America, including the GM Bt cotton varieties. 

Indeed, these are tough times ahead for the Indian economy, which has already been struggling with rising inequities and mass unemployment. The tariff and its impact on MSMEs will only increase unemployment. With the IT sector seemingly going through a slump, the only doubtful source of comfort is the economic data released periodically by the government, which proclaims that all is well.  

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Rakesh Agarwal is a scholar, activist, author and freelance journalist based in Dehradun, Uttarakhand.