Trump tariff: Domestic market on edge but no disruption just yet

As of now, barring the job-intensive export sectors of clothing, gems and jewellery, leather and footwear, and marine products, India’s domestic markets remain largely unaffected by the US tariff strike.

Inflation fell to an eight-year low of 1.55 per cent in July, the month which saw FMCG sales and stocks pick up in the run-up to an early onset of the festive season and supply chains in other consumer segments remain intact – leaving some room for optimism.

However, not just the domestic markets, even the Indian government is on the edge, anxiously waiting for Friday's (August 15) meeting between US President Donald Trump and his Russian counterpart Vladimir Putin in Alaska. A positive outcome would bring tariff relief, but what if it goes the other way?

Also read: Trump's tariff tirade: Can India weather the storm? | Talking Sense With Srini

On Wednesday, August 13, US Treasury Secretary Scott Bessant warned India that “if things don’t go well, then sanctions or secondary tariffs could go up”. Later, Trump issued a general threat of “severe consequences” if Putin did not stop the war in Ukraine.

While garment exporting units stare at a crisis with manufacturing and shipping getting stopped and several lakh workers sitting idle, especially after the penalty of 25 per cent tariff was announced on August 6, domestic supply remains unaffected.

FMCG sales, inventory went up in July

Meanwhile, a significant pre-festive uptick was seen in FMCG sales and stocks (food, beverages, commodities, personal care items, among others) in July. According to retail intelligence firm Bizom, which tracks kirana sales and stocks, FMCG sales grew by 8.6 per cent in July – up from 4.6 per cent in June and 7.3 per cent in Q1 of FY26. July sales remained stable at six per cent growth in urban areas, while rural markets clocked 10.3 per cent growth (year-on-year).

Harshit Bora, head of analytics at Bizom, told The Federal that the uptick in FMCG sales and stocks in July was not as strong compared to Q1 of FY26 as it was in June. That month, sales and stocks had been hit by the rains and factors such as exhaustion of the summer beverage stocks.

In July, he said, stocks picked up two to three weeks ahead of Rakshabandhan; while sales grew in all categories – chocolate and confectionery (16 per cent), commodities (20 per cent), dairy products (11.5 per cent) and packaged foods (seven per cent).

Also read: US Treasury Secretary Scott Bessent warns of higher tariffs on India

NielsenIQ’s sequential data for Q1 of FY26 showed that FMCG grew at six per cent, up from 5.1 per cent in the previous quarter Q4 of FY25. Meanwhile, the packaging industry is struggling with pre-existing shortages in raw materials and the consequent production disruptions.

Garment supply uninterrupted

While garment exporting units stare at a crisis with manufacturing and shipping getting stopped and several lakh workers sitting idle, especially after the penalty of 25 per cent tariff was announced on August 6, domestic supply remains unaffected.

Bhadresh Dodhia, former chairman of the Manmade and Technical Textiles Export Promotion Council, explained that this is because garment exporters have little presence in the domestic market and vice versa.

Vijay Jindal, president of the Garments Exporters and Manufacturers Association (GEMA), echoed Dodhia’s views. He, however, pointed out that the overall market sentiment has been gloomy ever since Trump hit India with high tariffs.

Also read: Trump miffed as India ignored his ceasefire claims, says ex-diplomat on US tariffs

According to him, domestic garment suppliers are relieved that the Bangladeshi supply has stopped due to the Indian government’s transport restrictions on the country, without impacting supply, as both formal and informal domestic garment suppliers have filled the gap. If the tariffs don’t go or are moderated soon, he foresees job losses in the exporting units and the consequent weakening of market sentiments, leading to a weaker demand.

Consumer electronics supply not affected

Indian exporters in electronics remain largely shielded from the US tariff, with 73 per cent of the total value exported to the US in FY25 ($10.65 billion, out of $14.65 billion) falling in the “exempted” list, according to the Electronics and Computer Software Export Promotion Council (ECSEPC).

As for domestic consumer electronics, no supply is seen nor anticipated. Rajesh Lohariwal, vice president, Eastern Zone, All India Electronics Association (AIEA), explained that the domestic market doesn’t source any components from the US, those come from China, Taiwan, and other countries – keeping the supply chains intact. Apple’s iPhones, exported from India, are in the US’s “exempted” category and no short supply is expected in it either. The same goes for laptops.

Also read: Modi and Trump likely to address UNGA amid India-US trade tensions

The ECSEPC’s Shomit Gupta also ruled out any supply constraint in future since exporters of non-exempted items such as printed circuit boards (PCBs), reception/transmission apparatus, panels and consoles for industrial use, optical fibres, automated banknote dispensers, electric inverters, and others are now pushing their wares in the domestic market – raising supply.

The government is considering several measures to keep the credit flowing through interest subvention, temporary moratorium on interest payments and soft loans to mitigate banks’ risk aversions.

India’s auto sector and its growing electric vehicle (EV) segment are not affected either. The US has a uniform tariff of 25 per cent for all countries, except Mexico and Canada, which attract zero per cent tariff, but no big competitors of India. Despite its rapid growth, the EV segment is not mapped well.

The Society of Indian Automobile Manufacturers (SIAM) said carmakers don’t provide separate data for EV and non-EV manufacturing to determine how the tariff may impact domestic supply. The Federation of Automobile Federation (FIDA) pointed out that only the Tatas make small electric cars, while the rest are in mid- and large segments.

No perceptible change in retail banking and investment

Though banks’ risk aversion hangs over the job-intensive export sectors, especially MSMEs, as manufacturing and shipping have stopped, there is no discernible change in credit outflows yet. Growth in credit to the non-food sector continues downward with 11 per cent in FY25 – half of 20.2 per cent in FY24 – which fell further to 1.2 per cent in June 2025 (over March 2025).

The government is considering several measures to keep the credit flowing through interest subvention, temporary moratorium on interest payments and soft loans to mitigate banks’ risk aversions.

Nitin Agarwal of Motilal Oswal Financial Services said slowdown is seen in bank credits but that predates the current tariff logjam. No discernible change in retail investment has been detected yet, he said, adding that retail investors are unlikely to change long-term strategies over short-term development such as the US tariffs, especially when Trump changes his stance almost every day.

Investment flows to mutual funds continue as a safer bet compared to direct investment in equity, but this too is a pre-tariff trend.

As for foreign investments, FDI inflows have slowed down in the past few years. The FPI pull-outs, however, have accelerated in August – rising from $1.55 billion in the entire month of July to $9.7 billion in the first nine working days of August (up to August 13).