How Trump's Tariff on Indian Goods is Shaking Up the Economy

Impact of Tariffs on Indian Exporters

The recent 50% tariff imposed by US President Donald Trump on Indian imports is beginning to have a significant impact on India's economy. Regions like Tiruppur, Coimbatore, and Karur in Tamil Nadu, which are vital to the knitwear industry and employ over 1.25 million individuals, are facing dire consequences. Exporters are expressing their concerns as they struggle with the tariff's effects, leading to paused or redirected orders, with competitors from Bangladesh, Pakistan, Vietnam, and Cambodia benefiting from lower tariffs ranging from 19% to 36%. Reports indicate that exporters may need to prepare for an unprecedented situation, as buyers are now expecting them to absorb the tariff increase before considering shipments to the US. The revised tariffs have pushed effective rates for certain knitted garments to as high as 64%, making Indian products significantly more expensive compared to those from Asian rivals, which could lead to a de facto trade embargo. Just weeks ago, Indian garment exporters were optimistic about profits due to the India-UK Free Trade Agreement and increasing US interest in Indian products. However, that optimism has quickly turned to despair as retaliatory tariffs, particularly concerning China, have risen to 30% and may decrease further if China secures a favorable deal with the US. Indian exporters are now at a loss regarding how to manage the increased tariffs, given their average profit margins of only 5% to 7%.

A troubling scenario is on the horizon. If exports decline by 10% to 20% due to lost orders, it could jeopardize between 100,000 and 200,000 jobs in the textile and garment sectors across Tiruppur, Karur, and Coimbatore in the coming months. The 50% tariff will not only affect the textile industry but also have repercussions for other sectors, including gems and small businesses, as it threatens India's $87 billion in exports to the US and signals deteriorating Indo-US relations. Industries such as leather, marine products, chemicals, and auto components are also at risk, with 55% of India's exports to the US in jeopardy. This situation arises despite the strong trade relationship between the US and India, which saw bilateral trade reach $190 billion in 2024.

India's primary exports to the US include pharmaceuticals ($8.1 billion), telecom instruments ($6.5 billion), and precious stones ($5.3 billion), while the US maintains a $45.7 billion trade deficit with India. The tariffs pose a threat to India's overall $434 billion in exports, with $87 billion directed towards the US, accounting for 2.5% of India's GDP. Industry analysts predict a potential $4-5 billion decline in engineering exports alone, with overall GDP growth estimates revised down from 6.5% to as low as 6%. In recent years, India's foreign policy has faced significant challenges, leaving New Delhi isolated and struggling to maintain favorable relations with its neighbors. The current geopolitical landscape, including India's ties with Russia, complicates its position with the US, particularly as Trump seeks to leverage India's oil purchases from Russia to gain further concessions in agricultural sectors. The Indian government is in a precarious position, as it cannot afford to alienate farmers by allowing American agricultural products into the Indian market. However, time is of the essence for India, which must negotiate a pragmatic economic deal with the US without succumbing to undue pressure. Now is a critical moment for mature diplomacy rather than mere optics.