Global payments
Posted on Aug 19, 2025
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Key Takeaways:
The August 2025 US tariff hike, reaching 50% on most Indian goods, threatens up to $65 billion in exports, hitting sectors like textiles, gems, auto components, and seafood the hardest.
SMEs reliant on the US market face cancelled orders, rising costs, and an urgent need to diversify into Africa, West Asia, and Latin America.
The overall GDP impact is estimated at 0.19–0.5%, with employment and sectoral competitiveness suffering more than the macro economy.
India’s government is pursuing diplomatic talks, pausing some defense deals, and supporting exporters through market diversification and compliance guidance.
Despite short-term pain, strong domestic demand, exempt sectors like pharma and electronics, and long-term trade resilience offer a path to recovery.
August 2025 marked a turning point for India–US trade relations. In just a few weeks, a series of US tariff hikes disrupted export plans for thousands of Indian businesses. What began as a policy move aimed at “balancing” trade quickly became one of the most significant challenges to India’s export markets in recent years.
For many exporters, it’s a direct operational crisis. Orders are being renegotiated or put on hold. Price competitiveness in the US market has eroded overnight. Sectors, such as textiles, gems and jewellery, auto components, and seafood are facing particularly intense pressure. Small and medium-sized enterprises, often reliant on a single dominant market, are now racing to find alternative buyers and manage rising financial strain.
Here’s everything you need to know about the timeline and scope of the Trump tariff news measures, assess their macroeconomic and sector-specific impact and analyse India’s policy responses.
How the 2025 US Tariff Surge is Disrupting Indian Export Sectors
In early August 2025, US President Donald Trump imposed steep tariffs on Indian imports. The move came in two phases:
Phase 1: Effective August 7, 2025: Initial 25% tariff on most Indian goods.
Phase 2: Effective August 27, 2025: Additional 25% tariff, taking total duties to 50%.
Many exporters are already reporting cancelled orders, shipment delays, and requests for heavy discounts from US clients. There’s an urgent need to diversify into new geographies.
Since US is India’s single largest export market, accounting for $87 billion in annual trade, or nearly 18% of India’s total goods exports, there’s an urgent need to diversify into new geographies.
Which Indian Export Sectors Are Most Affected?
The impact of US tariff news to the Indian export sector is being observed across different countries. Some industries face a much harder hit than others. Industry bodies have raised red flags about the damage to trade competitiveness.
According to S.C. Ralhan, President of the Federation of Indian Export Organisations (FIEO), “Nearly 55% of India’s exports to the US will be directly impacted.” The 50% tariff could leave Indian exporters at a 30–35% cost disadvantage compared to competitors from countries with lower duties.
Sectors facing major challenges include:
1. Textiles and apparel
According to Tiruppur Exporters’ Association (TEA) president K M Subramanian, almost 50% of the textile business, worth Rs. 6000 crore, will be impacted because of the US tariff.
This is a major blow for one of India’s most labour-intensive industries, which employs millions in small and medium-sized enterprises across states like Tamil Nadu, Gujarat, and Punjab. With higher prices, US orders may shift to lower-tariff competitors like Bangladesh and Vietnam.
2. Gems and jewellery
India dominates the global diamond finishing trade. The industry sustains the livelihoods of roughly two million workers, concentrated in hubs like Surat.
Steep Trump tariffs threaten to slow demand from one of its largest markets, raising the risk of layoffs and reduced operational capacity in an already competitive global market.
3. Automobile components & engineering goods
Engineering goods, such as auto parts, machinery, and industrial equipment, form another high-value export segment now under threat. Analysts predict a $4–5 billion drop in shipments to the US this year alone.
The competitive disadvantage created by the tariff hike could lead to reduced factory utilisation, deferred capital investment, and a search for alternative markets to absorb excess capacity.
4. Leather and footwear
With tariffs driving up costs, US buyers may turn to lower-cost suppliers like Vietnam and Bangladesh, putting pressure on production hubs in Tamil Nadu and Kanpur and impacting their export business.
5. Marine products
Shrimp exporters are bracing for nearly $2.9 billion in losses. The sector is heavily concentrated in Andhra Pradesh and Gujarat, meaning regional economies could take a sharp hit.
6. Chemicals, furniture, and dairy
While smaller in export volume, these segments provide vital jobs in certain states. Any slowdown could disproportionately affect regional economies dependent on them.
Read More: 10 Best Export Business Ideas for 2025
Macroeconomic Impact of US Tariffs on India’s Trade and GDP
With this significant change, the first question for many was: Will this derail India’s economy? The short answer is no, but it will leave visible bruises, especially in the above-mentioned export-heavy sectors.
Additionally, it’s important to understand the bigger picture as to how these tariffs could influence India’s overall economic growth, trade balance, and financial stability:
GDP Growth — limited but noticeable impact
India’s economy is driven largely by domestic consumption and investment, which together account for more than two-thirds of GDP. Exports are important, but they’re not the sole growth engine.
S&P Global Ratings and the PHD Chamber of Commerce estimate the GDP hit to be between 0.19% and 0.5%, depending on how long tariffs stay in place and whether the full 50% rate applies.
If the 50% tariff persists through FY26, some analysts expect growth forecasts to drop from 6.5% to as low as 6%, with further risk of slipping below that in FY27.
While this may appear insignificant at a macro level, it can impact employment and investment in foreign trade. The takeaway is that India will still grow, but a little slower than previously expected.
Read More: IEC Code vs Export Licence: What’s the Difference?
Indian trade balance
The Trump tariff news threatens up to $65 billion in revenue, widening the trade deficit and putting downward pressure on the rupee. This makes imports costlier and increases the risk of imported inflation.
Another challenge is competitiveness. Rivals such as Vietnam, Bangladesh, and China now enjoy a pricing advantage in the US market because their exporters aren’t facing the same steep duties.
Financial markets and currency — high volatility, limited Long-term risk
The initial US tariff announcements caused a sell-off in export-heavy stocks, especially in textile, jewellery, and engineering firms. However, Sensex and Nifty indices recovered quickly, as investors took comfort in strong domestic demand trends.
If the trend persists, the RBI may tighten monetary policy, raising borrowing costs for businesses and households.
Exemptions
Pharmaceuticals and electronics (smartphones included) are spared from the new US tariffs imposed. Together, they represent a significant portion of India’s high-value exports and remain highly competitive worldwide. Their exemption helps cushion the overall export loss and provides stability for some of India’s largest companies.
Medium- to long-term outlook
Despite the shock from the US tariffs, agencies like S&P expect India’s GDP growth to stay above 6% in the medium term. Several factors are supporting this resilience, such as ongoing domestic reforms, stable commodity prices, and a strong monsoon season boosting agriculture and rural demand.
If tariffs remain in place, India will face slower export-driven growth and persistent pressure on affected industries. And if negotiations succeed and tariffs are rolled back, export growth could bounce back quickly, restoring trade balance and improving currency stability.
Either way, India’s large internal market and ability to diversify trade partners give it resilience even in a volatile global trade environment.
Strategic Moves for Indian Exporters to the US Tariff Hike
Indian exporters are facing unprecedented pressure after the steep US tariff hike in August 2025, with many scrambling to adapt their business strategies:
1. Expediting shipments
Exporters are rushing to ship orders before the August 27 deadline, when the full 50% tariff takes effect. Goods shipped before August 7 and arriving in the US before October 5 still qualify for a lower 25% tariff, so logistics teams are working overtime to ensure timely deliveries
2. Reviewing contracts & cost-sharing
Firms are in close dialogue with US buyers. Many are renegotiating contracts to share the burden of new costs or to adjust order volumes.
3. Exploring exempt products
Exporters are carefully analysing goods lists to identify items exempt from tariffs such as pharmaceuticals and electronics are shifting production where possible to capitalise on these exemptions.
4. Diversifying Markets
Faced with the loss of competitiveness in the US due to high tariffs, businesses, especially SMEs are actively seeking new buyers in regions like Africa, West Asia, and Latin America. Some are even exploring shifting parts of production to countries with lower US tariffs, such as Vietnam or Mexico.
5. Legal and Compliance Vigilance
Exporters are coordinating closely with customs agents and lawyers to ensure proper classification of goods, avoid under-invoicing (which can trigger US fraud investigations), and comply with the complex new tariff rules.
Indian Government and Industry Response to Trump Tariff News
India’s response to the August 2025 US tariff hike has been swift and strategic, balancing diplomacy with practical support for exporters. This includes:
Diplomatic talks
The Ministry of External Affairs has called the move “unfair and unjustified”. They immediately opened talks with Washington, aiming to negotiate a rollback. India has avoided direct retaliation so far but signaled it could act if negotiations stall.
Source: mygovindia Instagram account
Defense deal pause
Procurement talks for key US defense contracts, including Stryker combat vehicles and Javelin missiles, have been put on hold. This is a clear message of India’s displeasure.
Energy sovereignty
Officials have defended India’s right to source energy from multiple suppliers, pointing out Western nations continue similar trade practices while criticizing India.
Exporter support
The Ministry of Commerce urged exporters to maximise shipments during the grace period. This means goods shipped before August 7 and arriving before October 5, face the old 25% tariff. Exporters were also reminded to follow the new US compliance rules closely.
Market diversification
Industry bodies like FIEO and CII are helping exporters tap into markets in Africa, West Asia, and Latin America, while promoting unaffected sectors like pharma and electronics.
Industry advocacy
Business groups are lobbying for faster trade talks, more government aid for MSMEs, and pushing exporters toward innovation and supply chain digitization.
Growth outlook
S&P Global Ratings and others reassure that India’s economy remains strong overall, though export-heavy industries will face short-term pain.
Final Thoughts
The August 2025 US tariff hike has hit Indian exporters at a sensitive moment in trade talks, with a Bilateral Trade Agreement meeting set for later this month in New Delhi. Experts advise India to steer clear of hasty retaliation, concentrate on a long-term strategy, and make sure any changes to energy policy are practical and economically viable.
While billions in exports and thousands of jobs are at a stake, India’s trade history shows resilience amidst that. By diversifying markets, innovating products, and strengthening global ties, exporters can weather this storm and emerge even stronger.
