India’s exports to the US, its biggest trading partner, plummeted by 37 per cent from May to October. This was the clearest indication yet that President Donald Trump’s punitive tariffs, amounting to 50 per cent on most goods from India, are now beginning to bite.
By some estimates, 1.35 lakh jobs have been lost in the gems and jewellery sector, one of the biggest segments in India’s exports to the US, while 1.5 lakh textile and garment sector workers are now out of a job. The impact could be greater when you consider more export-oriented sectors, like seafood and marine products, which employ about 3 crore Indians.
However, there is good news and bad news.
For all the impact of the US tariffs on exports, India’s economy seems to retain its glow—GDP growth in the July-September period was 8.2 per cent, with projections for the whole financial year now being raised by the Reserve Bank to upwards of 7 per cent. This will help India retain its position as the world’s fastest-growing major economy.
But, there is bad news—and worse—waiting in the wings. While the fall in India’s export volumes to the US was expected, what is alarming is the fall of exports in areas that have not been impacted by the punitive duties.
“There is this question of higher tariffs, but the bigger uncertainty comes from the fact that there is no deal,” said Ajay Chhibber, visiting scholar at the Institute of International Economic Policy at George Washington University. “Importers may be sourcing from other places now, thinking that with India, the situation remains very uncertain.”
Experts cite two likely scenarios for this drop: one, many exporters might have exported goods in bulk ahead of the tariffs kicking in. The second one is the worrisome bit—buyers in the US, who were till now sourcing from India, are now looking to other countries to source the same items, because the uncertainty over India could well mean that Trump could expand his tariffs to more areas. For instance, medicines and mobile phones are exempt currently, and so are services. The worry is that if progress is slow for the full-scale Bilateral Trade Agreement (BTA) and the Indian economy shows no signs of flinching, Trump could well expand the ‘coverage’ of his tariff tantrums.
The fact that there is even worse news stems from the reality that the arduous road India is taking to the US trade deal has been strewn with policy zig-zags on a daily basis—and they come with real-world costs. Those are not easy to overcome with just two signatures and a handshake, or a bear hug.
Reality bites
“After the tariffs were imposed, we have not received even a single order,” said Suresh Mathew, managing director of Nilex Exim Pvt Ltd, which sends packaged food items to the Asian diaspora. About 40 per cent of its exports were to the US. The company has reduced production and staff size.
When Trump started the whole tariff issue, India initially was better off with fewer duties than its rivals and was expected to walk off with a deal at the earliest. However, in reality, while even the likes of China hit on some sort of deal, India’s negotiations got stuck on the contentious topic of GM produce and opening the domestic market for American agriculture and dairy.
Meanwhile, rivals like Vietnam, Bangladesh, Sri Lanka, and the Philippines, who had all started off in April with tariffs higher than India’s, worked out deals which made them a much more attractive source for US buyers—at tariffs of 19 per cent (for the Philippines) and 20 per cent (for others).
Why trade with the US matters
India, on its part, has maintained decorum after each prickly Trump dump on Truth Social, even while exploring alternative options. The trade talks with the likes of the European Union (EU) were suddenly put on priority with a flurry of high-profile visits. The 27-member EU, with its purchasing power and size, is perhaps the only market comparable to the US. The recent G20 Summit saw India sew up a trilateral with Canada and Australia, and a broader agreement on furthering trade and business ties. The commerce ministry’s calendar is now chock-a-block with trade talks ranging from Oman (on the verge of completion) to Chile (the fourth round of talks) set for this month.
But make no mistake, the US market is like no other. “We are trying to explore new territories. Europe is one. India is now looking at South America with new eyes, and the Export Promotion Council did a roadshow in Australia recently. But the problem is that the US always had, and has, high volumes and currently there aren’t a lot of alternatives to replace it,” said Ankit Jaipuria, co-founder of ZYOD, which exports apparel to 40 countries.
The numbers speak for themselves. The US is India’s largest trading partner—the bilateral trade was around $130 billion in 2024-25. The US accounts for 17 per cent of India’s merchandise exports. More importantly, many labour-intensive sectors have strong exposure to the US market. A drop in this trade is bad for India, and not just in monetary terms, as the job losses could well become a political and sociological problem.
Four months into the high tariffs, the collateral damage is acute. Sectors like gems and jewellery reported a 30 per cent fall in October. The textiles and garments industry has already lost out on the lucrative Christmas shopping season, and they are now on the verge of losing summer orders worth $2 billion.
“The share of the US in India’s textile export basket declined to 28 per cent in September, a notable drop from the 36 per cent range seen till August,” said Miren Lodha, senior director of Crisil Intelligence, the analytics arm of Crisil. “Additionally, other key sectors such as electrical machinery and equipment, as well as marine products, have experienced a decline in exports.”
And it will take more than an interim trade deal to set matters right.
The next best thing
For the moment, many exporters are covered since many of them sent consignments in advance, anticipating a tariff onslaught. Apple, for instance, airlifted 600 tonnes of iPhones on five chartered planes from India to the US.
But the days ahead will be tough to navigate. “The business model itself has changed,” said Jaipuria. “On the demand front, it will never go back.”
This spectrum of impact will depend on the strategy exporters adopt. Some have cut staff and shut down manufacturing plants, and for many of them going back to pre-tariff status will be tougher, as deals will have to be renegotiated and labour will have to be re-recruited.
Some others have absorbed the tariffs within their cost, which, despite eating into their margin, helps them maintain their supply agreements. Some large players with better negotiating power have even gone in for renegotiation of contracts. However, they are in the minority, with most US buyers shifting from a Free on Board (FOB) model (once the consignment is on the ship it becomes their responsibility), to a Delivery Duty Paid (DDP) model (the exporter takes care of all the financial logistics, including the additional burden).
There are some biggies who have set in motion efforts to shift their operations to countries with lower tariffs. Some garment makers are eyeing Bangladesh and Sri Lanka, but this is something only big players can pull off. And the job losses within India will still remain.
“The biggest challenge is lack of predictability,” said Ravi Saxena, CEO and founder of the home appliances brand Wonderchef, which exports to many countries including the US. “Without clarity on future tariff structures, exporters are hesitant to commit to long-term pricing or capacity expansion. Some have sought government support through easier credit and liquidity to manage the short-term disruption.”
The great Indian rope trick
The government did announce schemes worth Rs45,000 crore in mid-November to support the struggling exporters. This will offer some relief for sure, but the work for the Indian exporter is now well cut out. There will be deals to be re-negotiated, and they should make an effort to spread out to other markets.
The worst news relates to ‘Viksit Bharat’, and India’s ambitions of becoming a global manufacturing hub.
“Now, investors will be more wary of investing in India, because India’s position is quite uncertain, at least in the US sphere,” said Chhibber. “And until there is a good trade deal, and even after that, people wonder whether India-US relations will ever go back to where they were. We don’t know. But that could potentially have an impact on chip manufacturers or other products where people who were thinking of coming to India to set up manufacturing may now be wary. That is a bigger worry.”
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If Trump shifts attention to services, there might be a lot of collateral damage
By K. Sunil Thomas
Interview/ Subhash Chandra Garg, former finance secretary
Q/ What is the long-term damage a few months of high US tariffs could do to the Indian economy?
Failure to do a trade deal with the US is a long-term lost opportunity. We could have gotten out of our blinkered mindset on agriculture trade. We could have allowed much higher purchases of corn at low prices, at zero tariff, to build alternative supply lines for petrol. We could have allowed the purchase of soybean oil to reduce dependence on palm oil imports. Similar for poultry and dairy. This would have got us good deals on textiles, fisheries, gems and jewellery, and other exports of our strength and advantage.
Q/ Some economists say it is not just a trade issue, but something that will have a domino effect on jobs and consumption. How true is that?
Immigration and services are our big strengths. Americans are feeling the heat on this front, and as Trump sees increasingly diminishing returns from merchandise tariffs, his administration is shifting attention to services—both those provided by Indian immigrants in the US and by GCCs (Global Capability Centres) and other companies from India. We have to be very watchful there. There might be a lot of collateral damage.
Q/ The government has been talking about self-reliance, domestic manufacturing, and the potential of the domestic market to tide over any drop in GDP growth due to a drop in exports. How realistic is this?
This is a blinkered and myopic thought. Especially in an age where, in the most dynamic sectors—computers, chips, solar, batteries, electric vehicles—we have an enormous technology disadvantage and huge import dependence.
Q/ The GST rationalisation was prompted partly by this thought process. Has it worked? Is it enough?
No, look at the domestic GST growth even after all the GST rate cuts. There is large negative GST growth. GST forgone requires multiples of volume growth to make up the loss. That is impossible.
Q/ The rupee’s value against the dollar has rapidly fallen this year. What is the role of tariff pressure in this?
Three reasons, in my opinion. First, in addition to the failure to strike a deal with the US, we are perennially negotiating without concluding with most others. We are one of the least trade-integrated nations. Second, we have no economically justifiable foreign investment strategy for the new industrial economy products in the absence of an investment treaty with the US and China. Third, despite India being a major current account deficit country, the RBI has bought a lot of gold, which is illiquid foreign currency. Unless we address this, our structural weakness will persist.