Explained: Why India shouldn't lose sleep over Trump's 25% tariffs

India shouldn't trade its future for short-term calm. Trump's tariff move is more noise than policy. Staying firm now will protect India's strength and choices in the long run.

In Short

• Trump’s 25% tariff targets Indian exports, triggers restrained response
• Tariffs unlikely to dent GDP, exporters pivot to new markets
• Trade associations back government’s calm, calculated diplomatic posture

When Donald Trump announced a sweeping 25% tariff order targeting Indian exports, effective August 1, it had all the hallmarks of a trade provocation. Yet in Delhi’s ministries and Mumbai’s market floors, the response was restrained.

The consensus across policy circles is clear: Trump’s move is less about trade policy and more about leverage. A pressure tactic.

Far from threatening retaliation, India is opting for dialogue. Commerce Minister Piyush Goyal told Parliament that the government would “safeguard the interests of our farmers, workers, and small entrepreneurs".

The Ministry of External Affairs reaffirmed that the broader US–India partnership “has weathered transitions and challenges” and should not be derailed by short-term frictions.

25% TARIFF TO HAVE LIMITED IMPACT

Strategic affairs expert Brahma Chellaney has been one of the few voices raising alarm over what he calls the "lopsided" nature of the trade expectations coming from Washington.

He pointed out that even under a new trade accord, the United States would retain relatively high tariffs on Indian goods—comparable to what it maintains on Vietnam and the Philippines, around 19–20%. In return, India would be expected to impose zero tariffs on most US imports, a clearly uneven arrangement.

The 25% tariff order, while headline-grabbing, is unlikely to trigger major macroeconomic tremors. According to estimates by ICRA, Nomura, and ANZ, the GDP impact is expected to be modest, around 0.2 to 0.4 percentage points. India exports roughly $87 billion worth of goods to the US annually—just 2 to 3% of its total GDP.

Sectors likely to take a near-term hit include traditional export mainstays: textiles, gems and jewellery, auto components, and seafood. But core sectors like pharmaceuticals, IT services, and high-end engineering remain relatively insulated.

IS INDIA A 'DEAD ECONOMY'? ASK AMERICAN CONSUMERS

Still, the frustration behind the tariff move isn’t rooted in deficit calculations alone. Trump has publicly derided India’s economy as a “dead economy,” but data tells another story, especially when it comes to what American consumers depend on.

India’s top four exports to the US—pharmaceuticals, textiles, electricals and electronics, and jewellery—form a critical part of American supply chains. India ranks among the top five import destinations for the US in pharma, textiles, and jewellery. In electronics, India is one of the fastest-growing exporters to the US.

“The total volume of ‘Made-in-India’ smartphones grew 240% year-on-year and now accounts for 44% of smartphones imported into the US, up from only 13% of smartphone shipments in Q2 2024,” according to Canalys data cited in this India Today DIU report. In the last quarter, India emerged as the dominant player in mobile handset shipments to the US.

Higher tariffs on key import destinations such as India could push up domestic prices for American consumers, especially in sectors where substitution is neither immediate nor cost-effective.

WHAT’S HOLDING UP THE INDIA–US TRADE DEAL?

The underlying tensions go beyond tariffs. Chellaney warns that the United States is not just demanding better market access but is pushing India to rewrite domestic policy in ways that could have long-term consequences.

He noted that India would be expected to open its agricultural and dairy markets, even though industrial-scale American imports could shatter India’s family farms and undermine its food security.

The United States also expects India to ramp up purchases of American energy products by tens of billions of dollars annually. And despite already being a growing buyer of US arms, India would be nudged to increase its defence imports further.

These expectations haven’t been officially acknowledged by Indian negotiators. But several of these themes have surfaced in earlier trade talks between the two countries, and officials say regulatory changes are already being quietly evaluated, including customs streamlining and possible tariff rationalisation on select capital goods.

WHY INDIA MUST STAND ITS GROUND

Exporters, meanwhile, are not standing still. Many are pivoting toward the EU, ASEAN, and Middle East markets, especially in sectors like engineering goods and climate-aligned manufacturing. The recently signed India–UK free trade agreement is expected to generate over Rs 500 billion annually and contribute 0.06% to India’s GDP in the long term, signalling new avenues for growth.

“A 25% US tariff may put some pressure on India’s export-driven sectors like engineering goods, textiles, and jewellery. This move underscores the growing trend of protectionism and may compel India to diversify export markets, push for FTA negotiations, and accelerate domestic value addition to maintain global competitiveness,” said Ajay Garg, CEO, SMC Global Securities.

“While Trump’s trade policies unsettle global supply chains, India’s resilience and economic agility are emerging as key differentiators. Notably, regional competitors like Bangladesh and Sri Lanka are still facing steeper tariffs, weakening their edge,” Garg added. “Amid global uncertainty, India remains one of the fastest-growing major economies, poised to lead the next phase of emerging market growth.”

Still, the deeper concern lies not in tariffs themselves, but in what they represent. Chellaney argues that this isn’t merely about trade, it’s about shaping the architecture of India’s future economic dependencies. “Conceding quietly,” he says, “can become a pattern.”

Opposition parties have accused the government of being too passive in the face of what they see as a coercive gambit. But export bodies and trade associations have largely backed New Delhi’s calm approach. They have urged exporters to renegotiate contracts directly with US buyers, share cost burdens, and reinforce India’s reputation as a reliable trade partner.

Officials insist that India’s sovereignty on food security, defence procurement, and digital trade remains non-negotiable, regardless of tariff threats.

TRUMP'S TARIFF PLAYBOOK

It may be noted that the 25% tariff order isn’t about economics; it’s Trump playing the same old game. Trump’s tariff playbook thrives on calibrated disruption: loud threats, sudden reversals, and pressure designed to unsettle rather than resolve. Sometimes he calls India a close ally. The next moment, it’s a “dead economy.” The inconsistency is the message.

For now, India is not retaliating, but there's little reason to lose sleep over what may well be another of Trump’s arm-twisting theatrics.

- Ends