By Biswajit Dhar
On August 6, President Donald Trump’s issued an executive order announcing the imposition of an additional ad valorem duty of 25% on Indian imports starting from August 27 for “directly or indirectly importing Russian Federation oil”. This was in addition to the 25% reciprocal tariff that took effect on August 7. The additional duty levied on India is unfair on at least two counts. First, energy industry consultants asserted that India began purchasing Russian oil in a major way at the behest of the US (bit.ly/3JUqRwU). Following the imposition of Western sanctions on Russia, the Biden administration asked India to buy Russian crude to prevent a major oil price spike that would have, in turn, resulted in high gasoline prices in the US which was already burdened with inflationary pressures.
Secondly, several other countries, including China, Türkiye, Brazil, and in the European Union (EU), have also been buying oil and oil products “directly and indirectly” from the Russian Federation, even after Western sanctions took effect. Since 2022-23, the EU emerged as a major importer of India’s petroleum products. While its share in India’s total exports before Russia’s invasion of Ukraine was 12%, during the previous fiscal its share had almost doubled to 22%. What must be pointed out is that the US has also been buying petroleum products from India, even during the Russia-Ukraine conflict. Its share in India’s exports remained almost constant at 7%, going up to 8% in the first half of 2025, the highest since 2022. The question is, how can President Trump and the US administration ignore the fact that China and the EU, among others, have been “directly and indirectly” importing Russian oil? More importantly, do they have the moral high ground to “punish” India for importing Russian oil for the reasons adduced above?
Export dependence on US raises risks
There is no doubt that the Trump tariffs would adversely impact the Indian economy on several fronts. The most direct one would be on India’s exports to its largest trade partner. India’s dependence on US markets consistently increased since the world’s largest economy became its largest export destination, replacing the UAE in 2012-13. The US share in India’s exports, which was then 12%, increased to 23% during the first half of 2025. The Trump tariffs could, therefore, have a major impact on Indian businesses not just because several key industries have large exposures to the US market, but also because the growth of India’s exports to the US in the post-pandemic period has been almost four times higher than its overall export growth. For a country whose exports have remained sluggish in the recent past, restrictions on access to its largest market would adversely affect India’s trade account and its current account deficit as well.
The 50% tariffs would adversely affect several sectors in which micro and small industries are prominent players. These include gems and jewellery, garments, carpets, leather and footwear, plastic products, furniture, and marine products. These products accounted for nearly 30% of India’s exports in 2024-25. The impact of the Trump tariffs could be quite severe for these labour-intensive sectors, risking livelihoods in India. Restricted market access for marine products would surely hit the coastal states, particularly Kerala, whose exports are hugely dependent on this sector. Among the larger industries, non-electrical machinery such as engines and turbines, automobile parts, and articles of iron and steel would be the most affected.
Sectoral impact varies sharply
The impact of the 50% tariffs on these industries would be quite varied, depending on many factors including the likely impact of higher prices of Indian products on consumer demand in the US and the presence of competitors in other countries. The extent to which the government is able to provide financial and other support, especially to the micro, small, and medium enterprise sector, to cushion the blow of the tariffs would play a vital role as well. Let us understand what this means.
Take for example the gems and jewellery sector, which has been unsettled by the 50% tariffs like most others. There are a couple of silver linings that may ensure that the sector is less impacted than others. The first is the nature of the products, which are generally price-inelastic. Higher prices of gems and jewellery have hardly deterred the consumers, including the persons of Indian origin in the US. It is also important to note that India’s share in the US’s jewellery imports has always been high; it was over 37% in the first six months of 2025. No other country has the ability to supply these products as much as India has. Israel has been the second best over the past couple of years with a share between 12% and 13%. India’s substantially higher supply capacities could stand it in good stead for keeping its market intact.
India’s garments sector could find itself at the other extreme. China dominated the American market in the past with a share exceeding 37% during Trump’s first term, though it has now reduced its share to 20%, in an attempt to decouple from the world’s largest economy. Vietnam and India have benefitted from China’s withdrawal, the latter gaining considerably more. India faces a losing battle to retaining its position as the third largest supplier, as its immediate competitor, Bangladesh, faces reciprocal tariff of 20%.
In the ultimate analysis, the impact of Trump tariffs on Indian businesses would depend on the extent to which the government can assist the micro and small enterprises on two fronts. One, it must provide necessary financial support to ride another difficult storm. And two, it should help Indian businesses to develop strategies for identifying new markets for propelling export growth.
The writer is Trade economist and former Professor of Economics, JNU
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