
India faces selective trade headwinds from US tariff impact, apparel sector most hit
Analysts say the impact of US tariffs may cost India anywhere between $7 billion and $30 billion in trade per year
The economic damage to India following the imposition of 27 per cent reciprocal tariff by the US government, announced early on Thursday (April 3), on all Indian goods exported to the US, is expected to be significant while the actual impact in value terms vary.
Loss may account for 0.7% of GDP
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Effective April 9, 2025, this tariff was part of Trump’s broader trade agenda, which set a baseline 10 per cent duty on all imports and higher country-specific rates to “reciprocate” foreign trade barriers.
India's merchandise exports to the United States totalled around $74 billion in 2024, with pearls, gems and jewellery accounting for $8.5 billion, pharmaceuticals contributing $8 billion, and petrochemicals amounting to approximately $4 billion.
Textile exporters to feel the pinch
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Indian manufacturers are expected to face order cancellations or postponements soon as American retailers adjust sourcing plans. With profit margins already thin in the textiles sector, they might get squeezed further, and this could force exporters to offer discounts to retain US buyers, directly affecting earnings and possibly leading to layoffs in this labour-intensive industry.
Silver lining
However, competitors like China, which is taxed at 34 per cent, Bangladesh at 37 per cent, and Vietnam at 46 per cent under Trump’s plan, are being taxed higher than India’s 27 per cent rate. Hence, in absolute terms, it could help the Indian apparel and footwear sectors.
However, key exemptions have been made for specific sectors: pharmaceutical products (around $9 billion of annual Indian exports) and energy products face no new tariffs. But reports suggest that the US may impose tariffs on these two sectors, too, at a later date.
Additionally, automobiles and auto parts – already targeted by a separate 25 per cent US auto tariff – are not subject to the 27 per cent rate (they continue under the 25 per cent levy). These measures sharply contrast with the near-zero or single-digit tariffs that most Indian goods previously faced in the US, fundamentally altering the landscape of India-US trade.
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Opportunity in EV space
However, a few analysts believe that India has a good opportunity in the EV space. “With US automotive tariffs rising, India's electric vehicle sector has a prime opportunity to capture a larger share of the US market, especially in the budget car segment,” Saurabh Agarwal, partner and automotive tax leader at Ernst & Young India said.Vulnerable sectors
Several other key sectors of the Indian economy are particularly vulnerable to the new tariff regime. The electronics industry, which accounts for nearly $14 billion in exports to the US, and the gems and jewellery sector, exceeding $9 billion in US-bound shipments, are expected to be among the most severely impacted by the US tariffs.
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India’s Information Technology (IT) services industry, including software services and back-office processing, falls outside the typical goods trade framework. Thus, Indian IT companies earning over 70 per cent of their revenue from the US market will escape the tariff bullet. However, indirect and longer-term effects of the tariff war could impact it, and there is potential for future policy moves in the services domain (e.g. visa rules) that would affect the IT sector.
Impact on steel, aluminium exports
In the case of steel and aluminium exports, they will continue to be taxed at 25 per cent and not 27 per cent. This is because the Trump administration had already imposed a 25 per cent tariff on all steel and aluminium imports in March.
Also Read: US tariffs on Indian steel: Limited blow, but dumping fears loom large
However, India’s steel trade with the US is relatively small in volume. While India is a large steel producer (over 140 million tonnes annually), it exports well under 1 million tonnes. In 2023, for instance, the US imported about $500 million worth of iron and steel from India. Steel Secretary, S Poundrik, had pointed out that this was “a relatively small volume” and that “if out of 145 million tonnes, we are unable to export 95,000 tonnes, it doesn’t matter”.
Meat, seafood exports to be heavily hit
In other sectors, fish, meat and processed seafood exports, valued at $2.58 billion in 2024, would be most severely affected, facing a substantial 27.83 per cent tariff difference. The introduction of US tariffs will notably reduce the competitiveness of shrimp exports to America. Additionally, India's exports of processed food, sugar, and cocoa products, which reached $1.03 billion last year, are likely to be impacted by a significant tariff disparity of 24.99 per cent.
Meanwhile, Morgan Stanley, in a note to investors, said, “While India is exposed to direct tariff risks, we have consistently highlighted that the bigger effect on growth from tariffs likely comes via the indirect transmission channel of weaker corporate confidence from heightened policy uncertainty and the spillovers to capex and trade cycle.”
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‘India must expand PLI schemes’
“From this perspective, India's low goods trade orientation and ability to generate domestic demand offset mean it is among the least exposed economies within the region from an indirect effect standpoint.”
E&Y’s Agarwal said that although short-term export fluctuations may occur, the mid-to-long term outlook suggests possible export growth for India (contingent on final international trade negotiations with the US). “To fully leverage this potential, the Indian government should expand existing Production Linked Incentive (PLI) schemes in these sectors to cover a wider range of products and extend their duration by two years, thereby bolstering domestic industries' investment and global competitiveness,” he said.
Analysts say the coming weeks will show how India navigates these trade barriers, which could impact its talks with the EU and UK on trade agreements.