US President Donald Trump has imposed an additional 25 per cent tariff on imports from India, bringing the total duty on Indian goods to 50 per cent. The decision comes as a pressure on India for continuing oil imports from Russia. This tariff is the highest tariff on any ASEAN countries and on par with China.
According to the brokerage, the US is India’s largest export market, accounting for around 18 per cent of India’s total exports and 2.2 per cent of GDP in FY25. Key items exported to the US include pharmaceuticals, smartphones, gems and jewellery, machinery, auto parts, textiles, and iron and steel.
Sectors who will suffer the most from US tariff heat
The new penalty tariffs, if implemented, could sharply reduce India’s exports to the US. “For several sectors, the US accounts for 30 to 40 per cent of India’s global exports in that category. A 50 per cent tariff would act like a trade embargo,” Nomura economists Sonal Varma and Aurodeep Nandi said in the note.
According to Nomura, Industries with thin margins and lower value addition, such as textiles and gems & jewellery, will be hit the hardest. Smaller firms in these sectors may struggle to survive.
Nomura also highlighted that Pharma and electronics, which make up about 30 per cent of India’s exports to the US, are currently exempt from the penalty. But any future change in exemptions could further dent India’s export earnings.
Sectors that may escape Trump’s tariff heat
While the blanket tariff affects a majority of Indian exports, some categories could escape the tariff heat as the tariff order announced under Annex II of Executive Order 14257 excludes certain sectors like mineral substances, metallurgical ores, fuels, industrial chemicals, and pharmaceutical precursors.
India looking for a shift in alliances?
With tension between New Delhi and Washington rising, Prime Minister Narendra Modi is reportedly preparing for his first visit to China in over seven years—possibly signalling a shift in strategic alliances.
Ajay Bagga, a market veteran said, “Signing a deal or reaching an agreement does not signal stability, as Trump will keep revisiting and rolling back deals, as he did with the USMCA trade agreement with Canada and Mexico.”
“Hence, the focus for India should be building a diversified set of export markets while strengthening the domestic consumption capacity through structural reforms, policy agility, tax cuts and formal manufacturing subsidies linked to job creation,” he noted.
Govt may soften stance on Russian oil to avoid escalation: Nomura
Nuvama highlighted that, “The key question is how the Indian government will respond to Trump’s pressure tactic.” So far, India has resisted offering direct subsidies to exporters and has maintained a defiant stand on importing Russian oil.
However, New Delhi may choose to soften its stance on Russian crude, or offer trade concessions to avoid a full-blown trade war. “India could also slow its import of Russian crude oil, striking a less defiant tone to Trump’s rhetoric. It could also consider relaxing some of its red lines on trade. However, negotiations have moved beyond trade concessions, and are now largely on geopolitical aspects,” Nomura added.
The 21-day gap between the announcement and implementation could be a strategic window for both countries to negotiate.