Introduction: A Shock from Washington
The Trump administration’s proposal to impose a 50% tariff on all imported goods from India has sent shockwaves through global markets. For India, the world’s fastest-growing major economy and a critical U.S. trade partner, this move poses a direct threat to its export-led sectors, millions of jobs, and overall economic growth trajectory.
The US tariffs impact on India could be deeper than many anticipate, striking at the heart of labor-intensive industries, disrupting supply chains, and altering investment flows. While the tariffs aim to protect U.S. industries, for India, the cost could be significant.
Why the 50% Tariff Matters
To understand the magnitude of this shock, consider these key points:
- The U.S. is India’s largest single-country export destination, accounting for nearly $87 billion in goods exports in 2024.
- A sudden 50% import tariff essentially prices Indian goods out of the U.S. market, especially for sectors where price sensitivity is high.
- Unlike minor tariff adjustments, this move is across the board, meaning no sector is entirely immune.
Trade experts estimate that if these tariffs remain in place for over a year, India could lose up to 30–40% of its U.S.-bound exports, causing widespread disruption.
India-U.S. Trade Relationship: Key Facts
- Total trade (2024): $192 billion
- India’s exports to U.S.: $87 billion
- Top export categories: Gems & jewellery, textiles, pharmaceuticals, engineering goods, IT services (services are currently unaffected by this tariff)
- Share of U.S. in India’s total exports: Around 18%
A 50% tariff jeopardizes not just numbers but long-standing supply relationships that Indian firms have cultivated over decades.
Which Sectors Are Most Vulnerable?
The US tariffs impact on India will not be evenly distributed. Certain sectors face a disproportionate hit due to their dependency on the U.S. market and their cost structure.
1. Gems & Jewellery
India dominates the global diamond cutting and polishing industry, with Surat as its hub. Nearly 40% of India’s polished diamond exports go to the U.S..
- A 50% tariff would make Indian diamonds significantly more expensive compared to competitors in Belgium or Israel.
- The Gems and Jewellery Export Promotion Council (GJEPC) warns that over 500,000 jobs could be at risk in this sector alone if U.S. orders dry up.
2. Textiles & Apparel
The ready-made garment (RMG) sector is another major casualty. India exported $8 billion worth of apparel to the U.S. in 2024, making it a top destination.
- A 50% tariff would wipe out India’s cost advantage, pushing buyers toward Bangladesh, Vietnam, or Mexico, which enjoy lower trade barriers.
- Millions of workers, mostly women in Tiruppur, Ludhiana, and Surat, could face wage cuts or layoffs.
3. Pharmaceuticals
India is known as the pharmacy of the world, and the U.S. is its biggest buyer. While essential drugs may see stable demand, branded generics and specialty formulations could face margin erosion.
- Indian pharma companies often operate on thin profit margins, and tariffs could make U.S. sales unviable for several product lines.
4. Engineering Goods
Engineering exports, including auto components and industrial machinery, also risk losing market share.
- The U.S. accounted for over $17 billion in engineering exports from India in 2024.
- Tariffs will push manufacturers to consider alternative markets, but such diversification takes time.
Estimated Export Impact by Sector (%)
The Employment Fallout
The jobs impact is not just theoretical. India’s major export clusters are labor-intensive, and even a short disruption can lead to massive layoffs.
- Diamond cutting hubs in Surat could see thousands of artisans lose work.
- Textile clusters in Tiruppur rely heavily on export orders; reduced demand means factory shutdowns and unpaid wages.
- MSMEs (Micro, Small, and Medium Enterprises), which lack financial buffers, are most vulnerable.
Analysts predict up to 2–3 million jobs could be at risk if tariffs persist beyond 12 months.
Estimated Job Loss Risk by Sector (%)
How GDP Growth Could Slow
Exports contribute significantly to India’s GDP. A sustained export decline can drag growth by 0.5 to 1.0 percentage points over the next two years.
- Direct effect: Reduced export earnings lower manufacturing output.
- Indirect effect: Declining confidence leads to investment slowdown, especially in sectors like textiles and engineering.
- Spillover effect: States dependent on export clusters face consumption decline, hitting local economies.
Long-Term Risks: Supply Chain Shifts & Competitiveness
One of the biggest dangers of tariffs is permanent supply chain reconfiguration:
- U.S. buyers might shift sourcing permanently to countries with favorable trade terms.
- India risks losing competitiveness if it cannot quickly adapt to higher-value manufacturing.
- Trade tensions could spill over to services (like IT and outsourcing), further compounding risks.
Policy & Industry Response: What Can India Do?
Experts recommend a three-pronged strategy:
1. Immediate Relief
- Export credit support for affected MSMEs
- Wage support schemes for vulnerable workers
- Temporary tax rebates to offset losses
2. Medium-Term Adjustments
- Market diversification: Push exports to EU, Middle East, Africa
- Upgrade value chain: Move toward high-value textiles, branded gems, and specialty pharma
3. Long-Term Reforms
- FTA negotiations with major economies
- Ease of doing business improvements
- Skill development programs for re-employability
Global Context: Lessons from Other Trade Wars
The 2018 U.S.-China trade war offers key lessons:
- Tariffs triggered massive supply chain shifts to Southeast Asia.
- Short-term pain was followed by structural realignment of global trade flows.
India must act quickly to avoid losing permanent market share.
Conclusion: A Test of Economic Resilience
The US tariffs impact on India is far-reaching. It’s not just a trade statistic—it’s about livelihoods, growth, and global positioning. While the shock is real, India has options.
Swift diplomatic engagement, industry support measures, and strategic reforms will determine whether this tariff storm becomes a temporary setback or a long-term structural challenge.
