India-U.S. Trade at a Crossroads: What Rising U.S. Tariffs Mean for Indian Exports

The global trade landscape has shifted dramatically in recent weeks, with the United States launching a new wave of tariff actions aimed at narrowing its record-high trade deficit. These measures—starting with a universal 10% tariff and followed by country-specific reciprocal duties—have triggered a cascade of retaliatory responses and created new uncertainties for global exporters, including India. As one of the U.S.’s top trading partners, India now faces heightened scrutiny over its tariff regime and non-tariff barriers, alongside increased vulnerability in key export sectors. This article explores the scale and structure of India-U.S. trade, decodes the math behind Washington’s tariff strategy, and evaluates how different Indian sectors may be impacted—while highlighting the policy and strategic levers India must consider going forward.

In our previous article, we unpacked the basics of tariffs, the evolving U.S. tariff war, and India’s growing trade exposure. Read about it here.

From Universal Tariffs to Retaliation: How April Reshaped Global Trade

🗓️ On April 5th, President Trump introduced a 10% universal tariff on most imports—excluding Canada and Mexico—as part of a broader effort to correct trade imbalances. This sweeping measure, dubbed “Liberation Day,” signaled a major shift in U.S. trade policy.

🗓️ On April 9th, 2025, the U.S. implemented higher “reciprocal” tariffs on imports from several countries, in addition to the 10% universal tariff imposed earlier. However, hours later, the administration paused most of these elevated duties for 90 days—except for China, which saw tariffs jump to 125% following its own 84% levy on U.S. goods. Indian exports, initially facing a combined 26% duty (10% universal + 16% reciprocal), benefited from the pause.

Meanwhile, Canada imposed a 25% tariff on U.S. auto imports that violated the USMCA, and the EU approved phased retaliatory tariffs on €20.9 billion worth of U.S. goods in response to earlier steel and aluminum duties.

🗓️ On April 10th, the White House clarified that the total tariff rate on Chinese imports is 145%, not just the previously announced 125%. This higher figure accounts for an additional 20% tariff imposed earlier in 2025, targeting China’s alleged role in the fentanyl trade.

The EU delays its steel and aluminum tariff retaliation for 90 days, aligning with the U.S. pause on reciprocal tariffs. Commission President Ursula von der Leyen says the move allows room for negotiations but warns countermeasures will follow if talks fail.

The Math Behind Trump’s Tariff War: How Reciprocal Rates Are Calculated

The U.S. calculated reciprocal tariffs by looking at the trade deficit it runs with each country, then applying a tariff equal to half of that deficit as a percentage of total imports from that country.

Let’s understand this with an example:

U.S. imports from X = $80 billion
U.S. exports to X = $20 billion
So, Trade Deficit with X = $80B – $20B = $60 billion
Deficit as percentage of total imports = 60/80 = 75%

Then, the reciprocal tariff rate is half of that:

Tariff Rate= 75% / 2 =37.5%

The main aim of this policy is to reduce the U.S. trade deficit, which hit an estimated $1.2 trillion in 2024, up 40% from before COVID. The U.S. government sees this rising deficit as a threat to its economy and is using tariffs to curb it. The method is seen as broad and blunt—it doesn’t look at which products or industries are actually causing imbalances. Instead of targeting specific sectors, it applies flat rates across a country’s entire export basket, which may hurt U.S. businesses and consumers who rely on those imports.

Mapping India-U.S. Trade: Growth Drivers and Policy Frictions

The U.S. is one of India’s largest trading partners, with bilateral trade reaching $ 129 bn in CY24. India exported $ 87.4 bn worth of goods to the U.S. and imported $ 41.8 bn, resulting in a trade surplus of $ 45.7 bn — up from $ 23.7 bn in CY15. The sharp rise is attributed mainly due to increased electronics exports following the PLI scheme launched in 2020, along with sustained growth in pharmaceuticals and textiles.

India’s key exports to the U.S. include electrical machinery , gems & jewellery, pharmaceutical products, nuclear reactor machinery and refined petroleum. On the other hand, India mainly imports energy commodities such as crude oil, natural gas, and coal from the U.S., along with pearls and precious stones, machinery, electronics, and aircraft components.

The United States has consistently expressed concerns regarding India’s trade policies, particularly highlighting the country’s elevated tariff rates and various non-tariff barriers that impede market access for U.S. goods.

According to the Office of the U.S. Trade Representative (USTR), as of 2023, India’s average Most Favored Nation (MFN) tariff rate stood at 17%, the highest among major global economies. Specifically, non-agricultural goods faced an average tariff of 13.5%, while agricultural products were subjected to a significantly higher average tariff of 39%.

Non-tariff barriers in India include restrictive import licensing, quantitative limits on items like pulses, and curbs on remanufactured goods and medical devices. The U.S. has also flagged complex customs procedures, inconsistent regulations, and the growing use of mandatory BIS compliance—especially in electronics, chemicals, and telecom—often introduced with little notice. Additionally, India’s stringent sanitary and phytosanitary (SPS) rules, including non-science-based standards for dairy and grain and mandatory fumigation, have hindered U.S. agricultural exports.

Assessing Sectoral Vulnerability to U.S. Tariff Hikes

This section assesses the potential impact of rising tariffs on specific sectors.
We evaluate two key factors: the tariff differential with the U.S. and the value of trade (exports or imports) with the U.S. Sectors that have both a high export value and a high tariff differential are considered the most vulnerable. Those with high export value but lower tariff differentials fall into a secondary risk category.

To provide further context, we also compare the tariff rates imposed on India’s key competitors in each sector. For example, in the textiles and apparel space, India competes with countries like China, Vietnam, Indonesia, and Bangladesh. If these countries face higher U.S. tariffs than India, the relative impact on India’s exports could be more muted.

That said, this analysis is only indicative, as several uncertainties make it difficult to quantify the full impact of rising tariffs. These include the price sensitivity of Indian exports, as well as potential policy responses from both the U.S. and Indian governments going forward.

Gems & jewellery ⚠️

According to a Motilal Oswal report, the tariff differential on Indian exports to the U.S. stands at 9.6%, with India exporting $9.3 billion worth of goods to the U.S. in CY24. A Crisil report estimates that the new tariff rates, including additional duties, could range between 26% – 33%, depending on the specific items exported.

India faces competition from countries like the UAE, Hong Kong, China, Israel, and Belgium. For some, such as the UAE and Hong Kong, the new tariffs could be as low as 10%, while China may face significantly higher rates.

Gems and jewellery exports, already under pressure for the past three years due to subdued U.S. consumer demand, may be further impacted. The new tariffs could weaken demand even more, as much of the cost increase is expected to be passed on to end consumers.

Textiles & apparel ✅

Tariff differentials in the textiles sector vary by product category. For knitted apparel, the differential stands at 4.9%; for non-knitted apparel, it is 6.2%; and for other textile articles, 3.1%. India’s exports to the U.S. across these segments range between $2.6 billion and $2.9 billion. Under the new structure, including additional duties, the applicable tariff rate is 37%.

India faces strong competition in this space from countries like China, Vietnam, Indonesia, and Bangladesh, with new tariff rates for these nations starting from 45%. The steep increase in tariffs on Chinese textiles could lead to trade diversion, with some of China’s exports potentially being redirected to India. However, a portion of this redirected supply may also flow to third-country markets where India competes—potentially intensifying competition for Indian exporters.

Iron and steel ➖

The tariff differential on Indian exports to the U.S. stands at 19.2%, with India exporting ~$3 billion worth of goods to the U.S. in CY24. Under the new structure, including additional duties, the applicable tariff rate is 25%.

India competes with countries like Canada, Brazil, Mexico, and South Korea in this segment, all of which are also subject to approximately 25% tariffs. While the U.S. accounts for 10% of global imports in this category, India contributes only 2% to the U.S.’s total imports. Given this relatively low exposure both to US and to global trade, Indian companies are unlikely to be significantly impacted.

Pharmaceuticals ⚠️

On April 8, President Trump announced that the U.S. would soon introduce a “major” tariff on pharmaceutical imports, aiming to pressure global drugmakers to shift production back to the U.S. This shift has major implications for Indian pharmaceutical companies, which are critical to the U.S. healthcare ecosystem.

The tariff differential on Indian exports to the U.S. stands at 10%, with India exporting ~$9 billion worth of goods to the U.S. in CY24. Other competing nations like Ireland, Germany, Switzerland and Singapore as well as India face just 1.27% tariff currently.

While most of the potential new tariffs may be passed on to buyers, the heavy reliance on the U.S. market means that even a slight impact on pricing or revenue could materially affect the fundamentals of Indian pharmaceutical companies.

Auto & auto ancillary ➖

The tariff differential on Indian exports to the U.S. stands at 8.1%, with India exporting ~$2.7 billion worth of goods to the U.S. in CY24. Under the new structure, including additional duties, the applicable tariff rate is 25%.

Mexico, Canada, China and Japan also face up to 25% / 25% / or higher in case of China depending on non-US content.

The U.S. has been the fastest-growing market for Indian automotive component exports, with Indian companies gaining 700 basis points in market share over the past eight years. However, since the U.S. accounts for only 3.5% of the industry’s production revenue, the overall impact is expected to be limited.

Looking ahead, Indian firms may face increased competition from Canada and Mexico, which together supply nearly half of U.S. automotive component imports and enjoy favorable terms under the USMCA agreement.

Chemicals ➖

Tariff differentials in the chemicals sector vary by product category. For organic chemicals, the differential stands at 7.3% and for other miscellaneous chemical products, it is 8.5%. India’s overall chemical exports to the U.S.is about $3.8 bn. Under the new structure, including additional duties, the applicable tariff rate is 29.7%.

India faces competition in this segment from countries such as China, Vietnam, Indonesia, Thailand, South Korea, and Japan. Among them, Japan has the lowest tariff at 27.7%, with India’s rate being fairly similar. The remaining countries are subject to even higher tariff rates.

India’s chemical sector might see a mildly negative impact. While lower tariffs compared to other countries offer a competitive edge, the steep tariffs imposed on Chinese exports could lead to a price war in non-U.S. markets—including India. This may result in heightened competition, margin pressure, and increased challenges for Indian firms in maintaining their market share.

India at Risk: How Global Tariff Wars Could Stall Growth and Hurt Exports

For India, the newly imposed 26% tariff marks a substantial increase from the previous weighted average of 12%, effectively raising the average tariff rate by more than 2 times. While this rate is lower than that imposed on some other emerging Asian economies, it still presents significant challenges for Indian exporters.

When global trade slows down—meaning countries import and export less—it hits emerging markets like India the hardest. Even a small 1% drop in global trade can reduce average income in these countries by 2–6% and lower productivity. A report by Systematix warns that if all G20 countries raise import tariffs by 15%, it could trigger a global recession, shrink world trade by 22%, and reduce global economic output by 3%.

India’s economy is closely tied to global trade. Between 2008 and 2019, every 1% rise or fall in global trade growth affected India’s GDP growth by nearly 1.8%. For example, during the U.S.-China tariff war in 2019, India’s growth dropped to 3.5% from an earlier 6.8%.

Rising protectionism—where countries raise tariffs and reduce trade—can slow down private investment, job creation, household spending, and lead to more debt for both families and the government.

Indian businesses also feel the pressure. When global trade slows by 1%, companies’ sales can fall by 1–1.2%. In contrast, a 1% rise in tariffs may slightly boost sales (by 0.5%) in protected industries. However, higher import costs hurt profits—earnings can drop by 2% with a 1% fall in trade openness, and by 1.3% with a 1% rise in tariffs.

The way forward for India

India is working to speed up a trade deal with the U.S., using the 90-day pause on new tariffs as a chance to restart talks and address deeper trade issues. The goal is to double bilateral trade to $500 billion by 2030.

One key area of difference is digital trade. The U.S. wants fewer restrictions on data flows and opposes India’s rules on storing data locally. India, however, insists on data control for privacy and security. These differences stalled earlier trade talks, and India has stayed out of global digital trade agreements. Still, digital trade remains a promising area for renewed engagement between the two countries.

As recently acknowledged by the RBI Governor, multiple uncertainties make it challenging to accurately gauge the impact of rising tariffs. These include how India’s tariffs stack up against those of other countries, the price sensitivity of our exports and imports, and potential government actions—such as the proposed trade agreement with the U.S. Together, these variables add significant complexity to assessing the true economic impact of tariff changes.

Despite these unknowns, sectors can still take practical steps to manage risk. This includes conducting a detailed tariff impact assessment to understand how increased duties affect their supply chains and trade flows. Companies should gather accurate import-export data and map out their trade routes—highlighting product values, duties by category, manufacturers, and countries of origin. Having this clarity can help businesses make informed decisions and prepare for different trade scenarios.

Reduce non-tariff barriers—such as extra charges, mutual recognition of standards and complex regulations—on U.S. imports in key sectors like alcoholic beverages, automobiles, chemicals, pharmaceuticals, and electronics to improve market access and strengthen trade ties.

With many countries now facing even higher reciprocal tariffs—apparel being a key example—some businesses may find it worthwhile to reassess their current manufacturing footprints and explore alternative production locations.

Conclusion:

The escalation of tariffs by the U.S. has not only disrupted global trade dynamics but also exposed structural vulnerabilities in India’s export ecosystem. While India has temporarily avoided the full impact due to a 90-day pause in reciprocal duties, its exposure remains significant—especially in sectors like gems & jewellery and pharmaceuticals. Given the rising risk of global protectionism, India must adopt a multi-pronged approach: fast-track trade negotiations, reduce non-tariff barriers, reassess manufacturing strategies, and enhance data-driven risk assessments across sectors. The current window is narrow, but with the right policy and business responses, India can mitigate the near-term shocks and position itself for long-term resilience.

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