Will India retaliate by slapping duties on US imports? Here is how new Trump tariffs affect the nation’s export-heavy industries

Last week, the United States administration’s announcement of imposing 25 per cent reciprocal tariffs on India surprised many, considering they were on the higher side than what was expected. If that wasn’t enough, US President Donald Trump on Wednesday announced additional 25 per cent tariffs on top of the earlier, taking the total tariffs to 50 per cent, accusing India of fuelling the war machine by buying Russian oil.

 

The additional tariffs will mean India will be at a considerable disadvantage to many of its rival Asian exporters in areas like textiles, clothing and footwear. Other major export-oriented sectors, such as gems and jewellery, auto components, and fish products, are also likely to face pressures.

 

To be sure, India’s total exports to the United States are modest. In 2024-25, India’s merchandise exports to the US were around $87 billion, accounting for 2 per cent of the country’s GDP. But certain sectors will be disproportionately hit. 

 

“A 50 per cent tariff will bring Indian exports to the US to a near-complete halt, with second-order hits on employment-heavy sectors like textiles and jewellery. The most impacted sectors are textiles, chemicals and auto ancillaries with direct exposure to the US,” pointed Seshadri Sen, head of research and strategist at Emkay Global Financial Services.

 

In textiles, for instance, exports to the US accounted for 29 per cent of total sectoral exports, according to India Ratings and Research. In gems and jewellery, US exports accounted for around 33 per cent of total exports. In pharma, India has a 40 per cent share of the US market, although pharma exports as well as electronics exports are currently exempt from the additional tariffs.

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Auto components are another sector that will be hit hard due to the tariffs. Last financial year, India’s auto component exports grew 8 per cent to $22.9 billion. North America accounted for 32 per cent of exports, according to the Automotive Component Manufacturers Association of India.

 

The higher-than-expected tariffs could lead to unexpected escalation, feels Dhiraj Relli, MD and CEO of HDFC Securities.

 

“This could hit Indian export-oriented sectors and may trigger retaliatory tariffs from India, risking a broader US-India trade dispute,” said Relli. 

 

The additional tariff rates come into effect after 21 days. The US trade team is scheduled to visit India on August 25 for the sixth round of talks on the proposed bilateral trade between the two countries. Market participants will hope that the issues are resolved through these negotiations before the actual implementation of the duties, noted Relli.

 

So far, India’s economy has been growing steadily. On Wednesday, the Reserve Bank of India retained its 6.5 per cent growth forecast for the current financial year ending March 2026. How can the additional tariffs impact India’s economic growth?

 

“If effective, the steep 50 per cent tariff would be similar to a trade embargo, and would lead to a sharp fall in affected export products, especially those with thinner margins (textiles, gem and jewellery). We had earlier expected a downside risk of approximately 20 basis points to FY2026 GDP. If these tariffs materialise, then the hit could be higher, depending on their duration,” said Mahesh Patil, CIO, Aditya Birla Sun Life AMC.

 

Emkay’s Sen also believes that India’s high dependence on domestic consumption will “avert any catastrophic growth collapse.” But, he sees the need for targeted stimuli to counter the tariffs, especially considering that the sectors likely to be impacted most, like textiles and jewellery, are employment-heavy.

 

“We see the government stepping in with fiscal support to these sectors, including protecting banks from potential non-performing loans,” he said.

 

The immediate casualty will be the rupee, which will take the brunt, he felt. Any fall in the rupee, however, will also offer some respite for exporters. India’s rupee has already been among the worst-performing currencies among Asian peers in 2025. The rupee closed at 87.73 against the US dollar on Wednesday. On Tuesday, it had hit 87.88, close to its all-time low of 87.95.

 

The key US contention behind the additional tariffs is that India continues to buy crude oil from Russia, which is at war with Ukraine. India has increased its crude oil imports from Russia. After Western countries imposed sanctions on Russia post its war on Ukraine, India took advantage of discounted price Russian oil was available at. This not only helped India’s economy, but oil refiners also benefited immensely from it by refining that crude and exporting it to other markets.

 

According to Nomura, Russia’s share of Indian crude oil imports has risen sharply to around 32 per cent of total currently from just 2 per cent in FY2022. India has already made its stand clear on Russian oil imports.

 

“We have already made clear our position on these issues, including the fact that our imports are based on market factors and done with the overall objective of ensuring the energy security of 1.4 billion people of India,” said Ministry of External Affairs spokesperson Randhir Jaiswal.

 

There will be two factors at play should India choose to shift from Russian oil imports, said Sonal Varma, Nomura’s chief economist for India and Asia (ex-Japan).

 

“India’s import bill will increase to the extent of the lost discount, which we estimate is only an additional cost of $1.5 billion (0.04 per cent of GDP) annually. Two, some refining margin squeeze is likely, but Indian refiners may choose to pass on the incremental cost to their customers. As such, the direct impact appears manageable,” said Varma.

 

Domestically, the expectation is that the government will keep prices at fuel pumps stable, limiting the risk to inflation and growth.

 

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