The hike is already inflicting concern throughout industries, notably for smaller exporters who rely closely on the US market. Right here's a breakdown of why this occurred and what it might imply for India.
Why did commerce talks collapse?
As per Reuters, India and the US held 5 rounds of commerce negotiations since April, aiming for a deal. However talks broke down over disagreements on India's farm and dairy sectors and its continued imports of Russian oil.
Officers on each side say political missteps and missed cues additionally contributed to the breakdown.
Additionally Learn: India's Russian oil beneficial properties worn out by Trump's tariffs
What tariffs have been imposed?
The primary 25% tariff on Indian imports got here into impact on August 7. It was a part of Trump's broader plan to impose reciprocal duties on international locations with excessive boundaries to US items. In 2024, the US ran a $45.8 billion commerce deficit with India.
Simply hours earlier than the brand new levy, Washington added one other 25%, citing India's Russian oil imports, which now make up round 35% of the nation's complete gasoline imports, up from a mere 0.2% earlier than the Ukraine conflict.
The additional tariff formally took impact on Wednesday, taking some duties to a staggering 50%.
Which sectors are most in danger?
The tariff hike hits clothes, gems and jewelry, footwear, sporting items, furnishings, and chemical compounds. Hundreds of small exporters might face critical losses, and jobs are at stake.
Items already in transit earlier than the deadline get a three-week exemption. Metal, aluminium, passenger autos, copper, and different gadgets beneath separate US commerce programmes are additionally spared for now.
The dimensions of the shock
As per the World Commerce Analysis Initiative (GTRI), India ships about $86.5 billion value of products to the US annually. Of this, roughly $60.2 billion (66%) will now face the 50% tariff. One other $3.4 billion in auto elements stays at 25%, whereas $27.6 billion, principally pharma, electronics and petroleum, stays duty-free.
Ajay Srivastava, founding father of GTRI, estimates exports from affected sectors might plunge 70%, collapsing from $60.2 billion to $18.6 billion. General shipments to the US might fall 43%, threatening lots of of 1000's of jobs throughout India's export hubs.
Additionally Learn: Trump's 50% tariff shock hits India: New Delhi faces one of its toughest trade blows in years
The macroeconomic fallout
India sends roughly 18% of its complete exports to the US, equal to about 2.2% of GDP, with key sectors like textiles, gems and jewelry, and leather-based delivery 30–40% of their world output to America, based on Nomura. For firms working on skinny margins, the newly introduced 50% tariff might be crippling.
Gaura Sengupta, chief economist at IDFC First Financial institution, estimates that the tariff might shave 0.4% off FY26 GDP development. Sakshi Gupta, principal economist at HDFC Financial institution, warns the impression might push development under 6%, saying, “We must considerably decrease FY26 GDP development forecast to under 6%, baking in at the least a 40–50 bps hit — double from our earlier estimates.” She provides that second-round results on personal funding, home manufacturing and labour markets might turn out to be a key danger.
Unemployment provides to the priority. India's general jobless charge was 5.6% in June, with city unemployment at 7.1%. Tens of millions of employees in textiles, jewelry and seafood sectors might be affected if shipments to the US decline by 20–30%, probably destabilising politically delicate states, based on analysts.
Bloomberg notes that the tariffs might additional stress company earnings after a weak quarter, notably for banks and IT corporations, regardless of current consumption tax cuts by Prime Minister Narendra Modi geared toward boosting the economic system. There's additionally concern that the federal government's fiscal plan might widen the deficit, which has already contributed to a 22-basis-point rise in benchmark yields this month.
Abhishek Upadhyay, senior economist at ICICI Securities Main Dealership Ltd, warns that if the 50% tariff persists, the impression might attain 1% of GDP over the complete yr, with wider implications for financial coverage and bond yields.
Nonetheless, some assist stays. The Reserve Financial institution of India Governor has advised that the quick impression of tariffs might be restricted, and upcoming commerce negotiations with the US provide a possible reprieve.
Varun Laijawalla, a London-based fund supervisor at Ninety One UK Ltd, says, “A mix of China's AI-led rally, new fairness issuances, and US-related geopolitical tensions has contributed to India's near-term underperformance.”
How is India responding?
India is providing monetary support, larger financial institution mortgage subsidies, and assist for exporters to diversify their markets. Officers have recognized almost 50 international locations the place exports might develop. Commerce talks with the US are reportedly ongoing regardless of the upper tariffs.
Has India modified its stance on Russian oil?
To date, India hasn't directed any modifications to its oil imports from Russia. Russian embassy officers in New Delhi say Moscow expects to maintain supplying oil to India.
Get a full overview of the impression right here
