Trump tariffs on India: US President Donald Trump on Wednesday declared a 25 per cent tariff on Indian goods, effective August 1, citing India’s “obnoxious” trade barriers and close ties with Russia for defence and energy.
The move, though not entirely unexpected, has triggered unease among Indian policymakers, exporters, and market participants, given the ambiguity around additional penalties Trump promised for India’s Russian transactions.
In a press statement, Trump referred to India as a “friend” but argued that it imposes some of the highest tariffs on US goods and continues to enforce non-tariff barriers that are “unreasonable.” He added that India’s energy and defence cooperation with Russia, especially amidst the ongoing Ukraine war, “empowers Moscow” and must be penalised. However, the details of the penalty for these transactions were not disclosed.
In its first response to the announcement, the Indian government stated that it had “taken note” of the new duty and is “studying its implications.” It reiterated its commitment to a “fair, balanced, and mutually beneficial” trade agreement with the US, signalling hope that diplomacy may temper the impact.
Export-Oriented Sectors to Feel the Pinch First
Industry experts believe the immediate impact will be most visible in export-heavy sectors. Colin Shah, MD at Kama Jewellery, said the decision comes as a “big blow” to India’s gem and jewellery industry, one of the country’s largest export contributors.
“The US is a critical export market. A 25 per cent tariff is bound to reduce the competitiveness of Indian goods, especially gems and jewellery, which are already under pressure due to prolonged geopolitical tensions involving Russia, Ukraine, and the Middle East,” Shah noted.
He further added that Trump’s return to political prominence and his unpredictable stance on trade have reignited uncertainty in Indian markets. “We expect trade with the US to remain muted in the near term. However, all eyes are now on the sixth round of India-US Bilateral Trade Agreement talks, scheduled for late August, which may provide clarity,” Shah said.
Meanwhile, Nuvama has also cautioned that India’s export-driven sectors may face turbulence. In its latest commentary, the brokerage estimated that India’s goods exports to the US — valued at approximately $87 billion — could be significantly impacted. These exports account for nearly 20 per cent of India’s total goods exports and around 2.5 per cent of GDP, underlining the weight of the US as a key trading partner.
While the direct blow to India’s GDP may be limited due to the modest overall share of US exports in the country’s economic output, the implications across sectors such as textiles, pharmaceuticals, electronics, agri-products, and machinery are likely to be substantial, Nuvama said.
Nitin Bhatt, Technology Sector Leader, EY India, said, “While the Indian IT services sector isn’t directly hit by the newly announced 25% US tariffs, the ripple effects could be substantial. Rising input costs may prompt US companies to scale back discretionary tech spending. Simultaneously, growing unease around workforce mobility and evolving digital taxation frameworks could redefine how cross-border services are priced and delivered.”
Investor Caution and Sectoral Impact May Intensify
Nuvama further noted that these developments may heighten investor caution. The elevated tariffs could lead to increased risk aversion among foreign institutional investors, especially at a time when India’s domestic consumption remains subdued. Sectors such as pharma, auto ancillaries, industrials, and tiles — which are heavily reliant on US demand — could witness notable volatility.
Small- and mid-cap segments, along with high-beta sectors like real estate and NBFCs, might see more intense pressure due to the risk of capital outflows. On the contrary, a depreciating rupee may benefit IT services firms, which tend to perform well in weak currency environments. Given that IT valuations are currently subdued, Nuvama expects this space to potentially outperform in the near term.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
