India Faces Trade Crisis as Trump Imposes 50% Tariff

India is struggling with one of its most severe trade shocks in years as the United States has imposed an additional 25% tariff on key goods from India, bringing the total U.S. charge to 50%.

This move has been activated by India's continued imports of Russian oil and defense equipment, which Washington accuses India of using to fund Russia's war in Ukraine indirectly.

This tariff will impact nearly $60.2 billion worth of Indian exports to the U.S., including industries like textiles, apparel, seafood and leather goods.

The Tariff's Impact on Indian Exports

The new tariffs greatly blow to India's export-led industries, particularly labour-intensive ones. Ajay Srivastava from the Global Trade Research Initiative (GTRI) warns that exports from these sectors could fall by up to 70%, potentially dropping from $60.2 billion to $18.6 billion.

This would lead to a decline in overall shipments by 43%, putting hundreds of thousands of jobs in India's export hubs at risk.

India exports around $86.5 billion worth of goods to the U.S. annually. With the new tariffs, approximately two-thirds will face the 50% charge. While $27.6 billion in pharmaceuticals, electronics and petroleum exports will remain exempt, sectors such as textiles, gems, jewellery and auto parts will bear the brunt of the additional duties.

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India's Response to the Trade Challenge

The Indian government has ruled out a response but is working to relieve the impact of the tariffs. Measures being discussed include the ₹25,000-crore Export Promotion Mission, which would provide trade finance, regulatory support and better branding for "Brand India."Additionally, government officials are considering reforms to the Goods and Services Tax (GST) to reduce the blow for labour-intensive sectors.

Foreign Minister S. Jaishankar has stated that India will continue to make strategic energy choices, despite U.S. research over Russian oil imports. Jaishankar highlighted the unequal treatment between India's oil imports and those of China and the EU.

The U.S. tariffs present a serious hurdle for India's export-driven growth and could lower GDP growth by up to 0.5%. Indian officials continue to negotiate with the U.S. on trade matters, with hopes that a bilateral trade agreement may offer some relief in the future.

However, India's strength will be tested now as it faces one of the toughest trade challenges in recent history.

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