Trump's new trade tariff will have an impact not just on India but also South Asia. Here's how

The Print

4 days ago

The Trump administration has cited India's growing trade surplus with the US, which currently stands at 44.4 billion dollars, its tight energy and defence ties with Russia and Iran, and its active role in the BRICS (Brazil, Russia, India, China and South Africa) bloc as grounds for the tariff hike.
Under the new regime, US has imposed 25 percent tariff on Indian goods entering the nation.
New Delhi: Home to the world's largest textile manufacturing and electronics hubs, South Asia will see a significant impact from US President Donald Trump's sweeping trade overhaul which saw him sign an executive order imposing new tariffs on 69 countries.
In contrast, Pakistan emerged as an unexpected beneficiary under the new tariff regime. The US slashed tariffs on Pakistani imports from 29 percent to 19 percent and launched a new energy partnership with Islamabad aimed at tapping into the nation's domestic oil reserves.
In a Friday interview with Fox Radio, Secretary of State Marco Rubio reaffirmed that India is a key ally and strategic partner for the US but said India's energy ties with Russia are 'most certainly a point of irritation'.
While the 25 percent tariff raises India's export costs compared to peers like Vietnam and Bangladesh, India will likely remain a preferred country for manufacturing. This is because 33 percent of companies with global supply chains are reported to have moved their manufacturing activities out of China.
A report in Reuters also noted that India may remain attractive for global firms like Apple despite the tariff setback. It added that unlike other world leaders, Prime Minister Narendra Modi didn't secure a reduced tariff rate from the US, likely due to refusal to open India's sensitive agriculture and dairy sector to US goods, avoiding domestic backlash.
Speaking to ThePrint, Ajay Srivastava, former director general of Foreign Trade and current head of the Global Trade Research Initiative (GTRI), said India-US trade relations have entered turbulent waters but Trump's executive order mentions that tariffs may be reduced once countries do a deal with the US.
'The US has imposed new tariffs on imports from various countries, with rates ranging from 10 percent to 41 percent. These will be over and above the standard MFN tariffs. This means that imports from these countries will now face both the standard US tariff and an additional reciprocal tariff, raising overall duties significantly. Tariffs on China not announced and they will continue to be 30 percent,' he said.
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Ripples in South Asia
Other South Asian economies have not been spared under the new US tariff regime.
Bangladesh and Sri Lanka now face 20 percent tariffs, levels that could erode their competitiveness in the US garments market, where price sensitivity is paramount. Afghanistan will see 15 percent duties, while Nepal, not explicitly listed, is expected to fall under a general 10 percent tariff.
For Sri Lanka, where garment exports make up over 40 percent of export revenue, the implications are stark. Many manufacturers are already using the impending hike as justification to freeze wages or lay off staff. Ranil Wickremesinghe, the former president, has warned that over 100,000 jobs could be at risk, The Economist reported.
The effects won't be limited to factory floors. We're talking about 2.5 to 6 million people who depend on these wages, Anton Marcus, a trade union leader in Colombo, was quoted as saying.
Bangladesh, already reeling from political upheaval after the 2024 ouster of Sheikh Hasina, is the world's second-largest exporter of ready-made garments, and saw major US buyers like Walmart and American Eagle suspending orders, citing uncertainty.
'We have lost nearly 25 percent of our US sales since March,' Mohiuddin Rubel, a former director of Bangladesh's garment manufacturers' and exporters' association told The Economist.
Bangladesh is ramping up imports from America to convince the Trump administration that it can close its $6 billion trade deficit. Recently, the government ordered 25 Boeing aircraft as well, it added.
Mohammad Yunus, the interim leader of Bangladesh, Friday welcomed the reduced tariffs.
'By reducing the tariff to 20 percent, 17 points lower than anticipated, our negotiators have demonstrated remarkable strategic skill and unwavering commitment to safeguarding and advancing Bangladesh's economic interests,' he wrote on X.
While the Pakistani government too celebrated the tariff reduction and energy partnership as a major diplomatic win, many in the country remain cautious.
'A 10-percentage-point cut may not be enough to prevent manufacturing from shifting to countries with even lower or zero tariffs, such as Egypt and Mexico. India, despite facing steep duties, continues to benefit from cost efficiencies in scale, infrastructure, and electricity, factors that could still make it more attractive to American buyers focused on maximising margins,' a Karachi-based economist told ThePrint.
Trump's executive order also targets several Southeast Asian nations suspected of enabling transshipment of Chinese goods.
Laos and Myanmar now face steep 40 percent tariffs, while Indonesia, Malaysia and the Philippines are subject to 19 percent (pls check figure). The move signals that Washington is widening its trade scrutiny in a bid to enforce a hard line on Chinese supply chains.
Impact on India
India's $86.5 billion in exports to the US, its largest single-country trading partner, could be significantly impacted.
The 25 percent duty is layered atop existing sector-specific US duties, including 50 percent on steel and aluminium, and 25 percent on vehicles and auto parts.
The US is India's largest market for textiles and apparel, accounting for nearly 28 percent of total exports in this segment. Indian textiles, currently facing 6-9 percent tariff, will be subject to a total duty of 31-34 percent after the additional 25 percent is applied.
Similarly, gems, jewellery and telecom products could see effective tariff rates ranging from 30-38.5 percent.
Pharmaceuticals have so far been excluded from the 25 percent tariffs imposed by the US.
The US has justified the higher tariff by pointing to India's high import duties, restricted market access and a $44.4 billion trade surplus enjoyed by India in FY25.
(Edited by Nida Fatima Siddiqui)
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