How will Donald Trump’s reciprocal tariffs impact Indian exports to the USA

Donald Trump’s reciprocal tariffs, announced as part of his trade policy and set to take effect in April 2025, are poised to have a multifaceted impact on Indian exports to the United States. Based on available data, India faces a 26-27% tariff on most goods exported to the U.S., with exemptions for pharmaceuticals and energy products. This policy aims to address the U.S. trade deficit—$46 billion with India in 2024—and counter what Trump perceives as unfair trade practices, given India's higher tariffs on U.S. goods (e.g., 70% on passenger vehicles vs. 2.5% in the U.S., or 50% on apples vs. 0% in the U.S.).

Key Impacts on Indian Exports

Export Value at Risk: India's merchandise exports to the U.S. totaled approximately $74 billion in 2024. Estimates suggest these tariffs could reduce exports by $2 billion to $7 billion annually, depending on duration and adaptation. Citi Research highlights that 87% of India’s U.S. exports ($66 billion) could be affected, with sectors like electronics ($14 billion) and gems and jewelry ($9 billion) particularly vulnerable due to their high export volumes.

Sector-Specific Effects:

Electronics and Gems/Jewelry: These sectors face the 26-27% tariff, potentially increasing costs for U.S. consumers and reducing demand. India’s electronics exports, up 44% to $20 billion recently, could lose competitiveness unless offset by supply chain shifts.

Textiles and Apparel: With competitors like Vietnam (46% tariff), Bangladesh (37%), and China (34%) facing higher duties, India could gain market share in textiles, where it has manufacturing capacity, despite the 26% tariff.

Pharmaceuticals: Exempt from the new tariffs, this $8 billion sector remains insulated, offering stability amid trade disruptions.

Agriculture: High tariff gaps (e.g., 24.99% on processed food, 38.23% on dairy) could hurt exports like seafood ($1.03 billion), though India might maintain or grow market share if rivals face steeper duties.

Steel and Autos: Steel exports may suffer from higher costs, building on existing 25% tariffs from Trump’s first term. Auto parts, also under a 25% tariff but not the new 26%, face limited additional impact, though broader trade tensions could disrupt supply chains.

Economic Growth :

The tariffs could shave 5-50 basis points off India’s GDP growth, currently projected at 6.6% for 2025-26, according to estimates from India Ratings and Research and EY. This range reflects uncertainty about duration and retaliation. A weaker rupee (already down from 83.8 to 87.16 since September 2024) could offset some export losses but raise import costs, fueling inflation.

Opportunities Amid Challenges

India’s relatively lower tariff rate compared to Vietnam (46%), China (34%), and others positions it favorably in some sectors. An internal Indian government report notes potential gains in textiles, apparel, footwear, and iron/steel if global supply chains shift away from heavily tariffed nations like China. However, capitalizing on this requires infrastructure upgrades and policy stability.

India’s Response and Mitigation

India is negotiating a bilateral trade agreement with the U.S., aiming to finalize an initial phase by September-October 2025 and boost two-way trade to $500 billion by 2030. New Delhi has offered to cut tariffs on $23 billion of U.S. imports (55% of its U.S. imports), potentially easing tensions. Diversifying export markets and enhancing domestic demand (e.g., via infrastructure spending) could further cushion the blow.

Conclusion

The tariffs present a mixed bag: significant risks to electronics, gems, and agriculture, but opportunities in textiles and steel if India leverages competitors’ higher tariffs. The net impact hinges on negotiation outcomes, global supply chain realignments, and India’s ability to adapt swiftly. While the State Bank of India suggests a modest 3-3.5% export decline even with 15-20% tariffs, broader estimates indicate a $2-7 billion hit, suggesting a cautious but proactive approach is key for India.