NEWS

• The US has imposed 50% tariffs on Indian merchandise (effective Aug 27, 2025).
• Sectors worst hit: textiles, apparel, gems & jewellery, shrimps, carpets, furniture.
• Rationale: US penalising India for purchases of Russian oil & defence imports.

HIGHLIGHTS

What are Tariffs?

• Tariffs: Taxes imposed on imports to protect domestic industries, reduce trade deficits, or as punitive measures.
• US tariffs combine:
  • 25% (announced July 2025).
  • Additional 25% (announced August 2025 as “penalty”).

India–US Trade Snapshot

• US = 20% of India’s exports, contributing ~2% of India’s GDP.
• In FY25, India exported goods worth $27.6 bn duty-free (pharma, electronics, petroleum).
• High tariffs now affect ~70% of exports; competitors like Vietnam, Bangladesh, Cambodia, Pakistan, China to benefit.

Impact on Indian Economy

• Exports to US may drop 40–45% in 2025–26.
• Labour-intensive, low-margin industries most vulnerable → job losses in textiles, gems & jewellery.
• May reduce India’s trade surplus with the US; India already runs deficits with China, Russia, UAE.
• Weakens momentum in PLI schemes and private capital investment, deepening slowdown.

Exemptions from Tariffs

• Pharmaceuticals, electronics, petroleum products → remain duty-free.
• Auto parts face lower 25% tariff (not 50%).

Policy Options for India

• Introduce duty drawback/reimbursement schemes (25–50% tariff offset).
• Provide sector-specific relief (like COVID-era packages).
• Diversify export markets; strengthen domestic demand.
• Use trade diplomacy (WTO, bilateral talks) to negotiate relief.

Key Takeaway

Trump’s 50% tariffs mark a major trade shock for India, threatening jobs, export earnings, and industrial growth. The move underscores the need for strategic export diversification, stronger PLI execution, and active trade diplomacy to mitigate long-term risks.