Tariff or No Tariff, India Marches On: Why the US 50% Tariff Won’t Stop Indian Growth

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by

Himanshu
in ,

🇮🇳 Trump’s 50% Tariff on Indian Goods – What It Means for India and the US

The recent hike in US tariffs on Indian goods—from 25% to 50%—is a significant trade move that will impact several industries. While the intention may be to reduce dependency on Indian imports and penalize geopolitical actions (such as oil purchases from Russia), the fallout is expected to create challenges for both countries—not just India.

🔻 Which Indian Industries Are Affected?

The US is one of India’s largest export destinations, and certain sectors are more exposed to this trade route than others. Industries with heavy dependency on US buyers include:

1. Textiles & Garments

  • India exports a large volume of ready-made garments and home textiles to the US.
  • The sector contributes significantly to employment, especially for women.
  • With a 50% tariff, Indian-made clothing will become more expensive for US retailers, making them shift sourcing elsewhere or reduce imports.

2. Gems & Jewellery

  • India is a global leader in diamond cutting and jewellery crafting.
  • Around 30–40% of high-end gem exports go to the US.
  • Tariff hikes make Indian jewellery far less competitive compared to Thai or Vietnamese suppliers.

3. Seafood (Especially Shrimp)

  • The US is the top buyer of Indian shrimp.
  • The tariff may wipe out the price advantage India has enjoyed for years, leading to loss of orders.

4. Leather & Footwear

  • Leather goods and accessories are another major export to the US.
  • India’s price-sensitive products may no longer be viable after the tariff bump.

5. Chemicals, Engineering Goods & Auto Parts

  • These form a growing share of high-value manufacturing exports.
  • These industries may see reduced demand or buyers looking for alternative suppliers.

📉 How Much Will It Impact India’s Export Economy?

  • India currently exports around $85–90 billion worth of goods to the US annually.
  • A large portion (estimated $60–65 billion) falls under categories directly affected by the tariff.
  • Exporters expect a 40–50% drop in orders in the impacted sectors due to loss of price competitiveness.
  • Specific industries like seafood may face revenue losses of ₹20,000–₹25,000 crore.
  • In total, India could see a $8–10 billion dent in export earnings in the short term.

💪 Can the Indian Economy Handle This Shock?

Yes—and here’s why:

✅ 1. Exports Are Only a Small Part of India’s GDP

  • India’s economy is now worth over $4 trillion.
  • Exports to the US form less than 2% of India’s GDP, so even a large drop in those exports won’t derail growth.

✅ 2. Strong Domestic Demand

  • India’s large middle class and consumption-based economy help balance export losses.
  • Sectors like real estate, fintech, renewable energy, and infrastructure are seeing growth from within the country.

✅ 3. Diversified Trade Routes

  • India is actively expanding exports to Europe, Southeast Asia, Middle East, and Africa.
  • New Free Trade Agreements (FTAs) and trade corridors reduce dependency on any single country.

✅ 4. Robust Sectors Unaffected by Tariff

  • IT services, pharmaceuticals, and software exports—India’s strongest exports—remain unaffected.
  • These sectors continue to attract global clients, investments, and revenue.

✅ 5. FDI and Manufacturing Momentum

  • India is becoming a preferred manufacturing hub under the “China plus one” strategy.
  • Global companies are investing in Indian production, which builds long-term resilience.

🔁 How the Tariff Will Hurt the US Too

While the US may try to pressure India through tariffs, this decision could backfire in multiple ways:

📌 1. Higher Consumer Prices

  • American retailers importing Indian textiles, jewellery, and shrimp will pay more, passing the cost to consumers.
  • This could add to inflation—a problem already troubling the US economy.

📌 2. Limited Alternatives

  • India is among the few countries that can produce high volumes at low cost.
  • Finding new suppliers may not be easy, and short supply could lead to product shortages or delays.

📌 3. Disrupted Supply Chains

  • Indian exporters form part of critical global supply chains, especially in auto components and engineering goods.
  • Disrupting this flow can hurt US manufacturing, not just retail.

📌 4. Loss of Balance in Strategic Partnership

  • The tariff move may strain India-US relations in areas like defense, tech, and geopolitical collaboration.
  • This weakens long-term trust and trade stability.

📌 5. Hurt to US Importers and SMEs

  • Many small and mid-sized US businesses rely on cost-effective Indian goods.
  • The tariffs may lead to layoffs, shrinking margins, or even shutdowns for such importers.

🧠 Final Takeaway

India may lose some short-term export revenue, but its economic fundamentals remain strong. With a growing domestic market, global investor interest, and alternate trade partners, India has the capacity to withstand the pressure and emerge even stronger.

On the other hand, the US may find itself struggling with inflation, limited alternatives, and unhappy consumers. In an interconnected world, trade barriers often result in mutual damage—not unilateral success.

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