Indian exporters are staring at a major challenge as the United States prepares to impose steep new trade barriers. A 25 per cent tariff on Indian goods, introduced earlier by the Trump administration, is already in force. From Wednesday, another 25 per cent duty will be added as retaliation for India’s continued purchase of Russian crude oil and military equipment. This means Indian exports will now face a 50 per cent tariff, one of the harshest trade actions in recent years.
From August 27, the new duties will apply to a wide range of products, hitting nearly two-thirds of India’s exports to the US, worth close to $60 billion. These goods will instantly become more expensive in American markets, reducing their competitiveness against global rivals. According to the Global Trade Research Initiative (GTRI), the impact will be deep and far-reaching.
Former ICAI president Ved Jain explained the dilemma, “The Russian oil import India is making is because it is economically viable. Now, in case we do not buy Russian oil, we will be economically inefficient, so that's not possible because the economy will suffer. So, we have to make a choice between the two evils - that we stop Russian oil, then we become economically inefficient and continue with export. On the other hand, we say, no, we will continue to be economically efficient by buying Russian oil, but we will face the music which comes to us in the shape of exports and some challenges which are there on that part.”
The most vulnerable sectors are labour-intensive industries such as textiles, gems and jewellery, carpets, shrimp, and furniture. These sectors rely heavily on exports, and small and medium enterprises within them are bracing for job losses and shrinking profit margins.
Bhadresh Dodhia, a textile factory owner, highlighted the unsustainable pressures on exporters: "To be honest it's a no-go and non-starter for any importer to take such a big hit on any imports, especially when it comes to the textile value chain - the whole supply chain is working on a very thin margin. To absorb such a heavy increase in the tariff, I am afraid it's only the consumers who will have to bear [the additional cost] eventually. For the short term, we are all waiting for a miracle to happen and an additional 25 per cent tariff to go away."
Experts also warn that the US itself would not escape the consequences. Higher import costs will push up inflation at a time when prices are already a concern.
Economist SP Sharma highlighted the risks to the US economy, "I don't see that this is going to benefit the US economy in any way, because it will increase their inflation trajectory, which is already high, because more than 2 per cent inflation in the US is not tolerable. So, they have to bring down their inflation scenario in the coming times. If the inflation remains high, then the US economy will not be able to grow at a normal rate also. And their growth rate is not that impressive, they grew at around 1.4 per cent during the earlier Trump tenure of 2017 to 2020. So, I believe again, they will face such a slowdown if they are increasing the tariff at such rates of 25 per cent or 50 per cent on the major suppliers."
Projections show India’s exports to the US, presently valued at $86.5 billion, could shrink to $49.6 billion by FY26. While 30 per cent of exports will stay duty-free and 4 per cent will face only 25 per cent duty, the largest chunk, 66 per cent or $60.2 billion, will now carry a 50 per cent tariff. These include some of India’s most crucial export categories.
The immediate gainers will be countries such as China, Vietnam, Mexico, and Turkey, which are ready to take India’s place in the American market. Since the US makes up 18 per cent of India’s total goods exports, the fallout from Washington’s decision is expected to cause serious disruption, particularly for industries most affected by the new trade barriers.
Also Read: India hit with new 25 percent US tariffs from August 27
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