Trump issues warning of 50% tariff on Indian imports, prompting India's pledge to safeguard its national interests.
The United States, India's top export market, accounts for approximately 18% of India's exports and 2.2% of its GDP. However, a recent decision by the US to impose a 50% tariff on Indian goods could have severe repercussions for India's economy and trade relationships.
Key potential consequences include:
- Export Loss and GDP Impact: Roughly 55% of India's $87.3 billion merchandise exports to the US could be affected. This could wipe out between $30 billion and $35 billion in exports, primarily hitting labor-intensive sectors like textiles, gems and jewellery, marine products, auto components, and agriculture. This export shock may reduce India's GDP growth by nearly 1%, with growth forecasts for FY26 already revised downward and facing further risks of a 0.2% to 0.5% drag due to tariffs.
- Trade Surplus Reduction: India recorded a $45.8 billion trade surplus with the US last year, which could shrink substantially due to the new tariffs since many key exports face a doubling of tariffs from earlier 25% levels to approximately 50%.
- Investment and Capital Flow Pressures: Investor sentiment is deteriorating, with foreign portfolio investors withdrawing $2 billion in August alone and continued declines in foreign direct investment trends. This may lead to weaker exports, slower economic growth, and volatile capital flows, creating a negative feedback loop.
- Additional Tariffs Linked to Geopolitical Issues: The tariffs are partly justified by the US citing India's indirect imports of Russian oil, leading to added 25% "ad valorem" duties as part of a national security measure. These increased levies are layered on top of existing reciprocal tariffs, intensifying the trade barriers.
- Trade Relationship Strain: Such high tariffs risk worsening bilateral trade relations, potentially prompting reciprocal tariffs by India or other retaliatory trade policies, disrupting broader economic and diplomatic ties between the two countries.
The foreign ministry spokesman, Randhir Jaiswal, has stated that the US decision to impose additional tariffs is "extremely unfortunate." The recently concluded FTAs (free trade agreements) with Australia and the UK have come at a good time for India. However, India still has 21 days to negotiate with the Trump administration before the combined tariffs come into effect.
Lalit Thukral, president of the Noida Apparel Export Cluster, states that the 50% tariff means closing factories and businesses. Thukral also mentions that this is the first time such a situation has been experienced in his 45-year career. Anupam Manur, an economist at the Takshashila Institution in Bangalore, predicts that the 50% tariff could cut Indian GDP by 0.6 to 0.8%.
India will likely look at diversifying trade partners due to the unreliable nature of trade with the US. The country will also look to strengthen its trading relationship with the Middle East, with UAE and Saudi Arabia being its third and fifth largest trading partners, respectively. India will hope to sign a trading arrangement with Europe as well. The economic growth of India could slip below 6% this year due to the tariff.
In conclusion, the 50% US tariffs pose a serious challenge to India's export-driven growth model, calling for urgent policy actions to mitigate adverse impacts on key industries and maintain stable trade relationships.
- The foreign ministry spokesman has expressed disappointment over the US decision to impose additional tariffs, stating it as "extremely unfortunate."
- The recently concluded FTAs (Free Trade Agreements) with Australia and the UK have come at a good time for India, but the US tariffs are looming within 21 days.
- The 50% tariff imposed by the US could wipe out between $30 billion and $35 billion in exports, primarily affecting labor-intensive sectors like textiles, gems and jewellery, marine products, auto components, and agriculture.
- The tariffs, partly justified by the US citing India's indirect imports of Russian oil, may lead to further strain in the trade relationship between the two nations.
- The 50% tariff could reduce India's GDP growth by nearly 1%, with the economic growth of India potentially slipping below 6% this year due to the tariff.
- In response to the unreliable nature of trade with the US, India will likely look at diversifying trade partners, focusing on strengthening trading relationships with the Middle East, particularly UAE and Saudi Arabia.
- An economist at the Takshashila Institution in Bangalore has predicted that the 50% tariff could cut Indian GDP by 0.6 to 0.8%, while the president of the Noida Apparel Export Cluster fears it could mean closing factories and businesses. Additionally, the tariffs could impact policy and legislation, politics, world finance, business, and general news, with potential repercussions for India's economy, trade relationships, and foreign investment.
