Rush to beat tariffs boosted India's FY25 exports to the US. Can the momentum last?
India's exports to the US jumped at the start of 2025, as tariff threats and global uncertainty prompted a frontloading of trade. But the coming months may test the resilience of this momentum amid a turbulent global trade reset.
In the January–March (Q4) quarter, the surge in shipments helped FY25 end with an 11.8% rise in US-bound exports—even as India's overall exports barely grew. The US remained India's largest trading partner for the fourth straight year, with its share in India's exports rising to 20% in 2025, from about 10% in 2010.
Over the past 15 years, trade between the two nations has grown steadily. In each of the three five-year periods since 2010, the compound annual growth rate (CAGR) of exports to the US has outpaced that to the rest of the world.
Read this | Trump tariffs: Here's how Indian exporters of apparel, drugs and tyres are preparing for all contingencies
But FY26 could bring new headwinds: a potential US slowdown, policy flip-flops on tariffs, and a generally bleak global trade outlook. In this uncertain environment, a trade deal with the US could be India's best bet to cushion the blow and preserve gains.
The US has tied its tariff regime to bilateral trade deficits, though these hikes are currently paused until 9 July, with only a 10% baseline rate in effect. For India, two issues loom large in the negotiations: its sizable goods trade surplus with the US and the relatively high tariffs it imposes on US imports.
Tariff tremors
Since January, Trump's renewed tariff threats have kept global trade on edge. While China rerouted some of its trade to Asean nations, India seized the moment to frontload exports, underscored by Apple reportedly airlifting 600 tonnes of iPhones from India to beat tariff deadlines.
Read this | As US court declares Trump's tariffs illegal, experts urge India to reassess trade talks
The data now confirms this frontloading: Indian exports to the US surged nearly 28% in the January-March quarter, with momentum continuing into April, which saw a 27.3% year-on-year jump. On a sequential basis, fertilizers (267%), electronic goods (124%), and petroleum & crude (108%) led the March-quarter growth.
Manufacturing goods account for over 85% of India's exports to the US. The basket is primarily led by engineering goods, pharmaceuticals, and electronics. Notably, the share of electronics in the US manufactured goods exports basket doubled from 4.3% in FY06-FY15 to 8.6% in FY16-FY25, bolstered by government incentives to promote local manufacturing.
But that growth could come under pressure, experts warn. The US administration's push for reshoring manufacturing may prompt companies to shift production back home. Trump has even threatened an additional 25% tariff on Apple if it doesn't relocate iPhone production to the US.
While India may be insulated from tariff disruptions in some segments, electronic goods could prove vulnerable. 'The kind of goods that we export to the US (pharmaceutical products and machinery) have low demand fluctuations. This helps us maintain a strong momentum," said Saon Ray, visiting professor at the Indian Council for Research on International Economic Relations.
In the case of electronic goods, diversifying to new markets quickly will be challenging for India due to varying "standards or specifications" needed in each market, Ray pointed out. 'I am more optimistic about the engineering and pharma sector, but for the electronics sector, it might be quite a challenge this year."
Hard bargain
As the world navigates a global trade reset, with the US and China inching toward a new deal, analysts and economists have dialled down the risk of a recession.
Still, a slowdown in the US economy can't be ruled out if reciprocal tariffs are enacted. This could potentially mean lower exports to the US as the two are usually correlated to each other, Ray pointed out.
Against this, Washington's trade deals with countries will be essential to avoid the slowdown. The US and China are currently holding talks to strike a trade deal, though there may be too many wrinkles to be ironed out before it is finalized.
India is not perceived as a big a threat as China by the US, though the high trade surplus and high tariffs imposed by India on imports from the US has irked Trump. Before reciprocal tariffs, India's tariff markup over US tariff rate was as much as 11.5 percentage points, according to Fitch Ratings.
Although there is a good case for India to offer lower tariff rates on the US products, experts believe India can and should drive a hard bargain with the world's largest nation.
In a recent report, think-tank Global Trade Research Initiative (GTRI) argued that Trump's tariffs are purely based on the goods trade deficit it runs with other countries and omits services trade, where India is a big benefactor, completely.
While India runs a small trade surplus in services trade with the US as well, GTRI estimated that it may not be taking into account the earnings by the US through education, digital services, financial operations, intellectual property royalties, and arms sales.
Read this | As US court declares Trump's tariffs illegal, experts urge India to reassess trade talks
"When you factor them in, the US isn't running a deficit with India at all—it is sitting on a $35–40 billion surplus," GTRI said in a report last month. 'For India, this means it has every reason to walk into free trade agreement negotiations with confidence, pushing back hard against inflated deficit claims and demanding fair and balanced terms."
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