Trump's 25% tariff threat puts $87 billion in Indian exports at risk

Mint

4 days ago

New Delhi: India's $87 billion export pipeline to the US is facing fresh turbulence after President Donald Trump proposed a 25% reciprocal tariff on Indian goods, escalating trade tensions just days before a pause on such duties is set to expire. The move threatens to disrupt sectors ranging from textiles and electronics to pharmaceuticals and auto parts.
While details of the proposed tariffs are yet to emerge, Trump's statement, issued Wednesday, has unsettled markets and cast a shadow over India's near-term export outlook. A US delegation is scheduled to visit India on 25 August for bilateral trade talks, but the final contours of the measures remain unclear.
'While India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high, among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country," Trump said on his social media platform Truth Social.
The Indian government is analysing the potential impact of the 25% tariff on exporter losses in terms of value and outbound shipments, the ministry of commerce said in a statement issued Wednesday.
Madhavi Arora, chief economist at Emkay Global Financial Services, said the proposed tariffs would significantly raise the effective US duty on Indian goods from an average of 10.7% to about 22%, after factoring in higher duties on exempted sectors such as copper, steel and aluminium. This rate, she added, is already higher than what most Asian economies face, barring China.
'We do not believe the talks are over," Arora said, noting that while negotiations appear stalled, geopolitical factors may drive a fresh round of engagement. 'Even countries like the UK, EU, Japan, and Indonesia, Vietnam that signed trade pacts with the US continue to face elevated tariffs despite major concessions. These deals are, in many ways, no better than a trade war," she said.
India exported goods worth $87 billion to the US in FY25, accounting for 2.3% of GDP, Arora said.
Of this, five sectors—engineering goods ($19.16 billion), electronics ($14.64 billion), drugs and pharmaceuticals ($10.52 billion), gems and jewellery ($9.94 billion), and textiles ($10.91 billion)—together made up $65.17 billion.
According to government estimates, about 75.3% of India's merchandise exports to the US could be impacted by the proposed tariffs.
'We've already seen front-loading of shipments in the last three months, so exports may remain tepid in the coming months unless clarity emerges," she added. Her current account model factors in a 3.5% contraction in exports, though the overall current account deficit-to-GDP ratio remains below 1%.
Exporters flag rising costs
'The 25% tariff on Indian manufactured goods by the US introduces new variables for exporters, particularly in sectors such as electronics where supply chains are globally integrated," said Abhishek Malik, executive director of Calcom Vision Ltd, which exports LED lighting systems and BLDC fans. 'These measures could lead to higher cost structures and may influence future investment decisions and planning."
Vipul Shah, former chairman of the Gems and Jewellery Export Promotion Council (GJEPC) and an exporter himself, said the move could materially damage shipments: 'It's a big setback for the gems and jewellery sector. The US is one of our largest markets, and if the revised tariff remains in place, exports could decline by about 30%."
Rajiv Nath, forum coordinator at the Association of Indian Medical Device Industry (AiMeD), said the relative competitiveness of Indian firms may depend on how Chinese duties evolve.
'Clarity will come after 12 August, when the duties on Chinese products are expected to be finalised. They were earlier raised to over 50%, but were temporarily reduced to 30%," he said. 'If, after August, the duties on Chinese medical devices revert to over 50% while Indian goods face a 25% tariff, our export prospects versus China will improve. However, both the government and manufacturers will need to work on enhancing our competitiveness to offset the 6% disadvantage we face compared to Indonesian and Vietnamese competitors."
Textile firms brace for hit amid uncertainty
In the textile sector, the proposed 25% tariff, and the added risk of an unknown penalty, has weighed on sentiment, especially since industry expectations had been for a softer rate following the 90-day pause.
'This is slightly worse than expected," said Harsh Mittal, research analyst at Emkay Global Financial Services, adding that companies such as Gokaldas Exports, which derives nearly 48% of its revenue from the US, are likely to feel the most heat. SP Apparels and Pearl Global, with 25-30% exposure, may also take a hit, while KPR Mills, with under 9% dependence, could see limited impact.
While textile stocks may react negatively in the near term, the sector is banking on relief from other trade agreements. The India-UK FTA, expected to be operational in a few months, and ongoing talks with the EU may help offset some market share loss in the US, Mittal said.
Pharma counts on exemption, but awaits clarity
Pharmaceutical players are cautiously optimistic that Indian generics may be exempted from the proposed tariffs, similar to the zero-tariff carve-out offered in the US-EU deal.
Shashank Krishnakumar, pharma expert at Emkay, said Indian companies supply nearly 47% of the US generics market by volume, and any tariff shock would hurt both sides.
While US-based Teva Pharmaceuticals has flagged uncertainty, most Indian players, including Aurobindo, Dr. Reddy's and Biocon, expect to continue exports regardless of tariff movements.
'Onshoring is not a viable option given the regulatory timelines and cost inefficiencies," he said. Sun Pharma's specialty drugs, largely made in Korea, may see some relief due to that country's preferential terms with the US.
Auto parts makers already under pressure
Auto component firms, already subject to a 25% US import duty since April, do not expect a major incremental hit unless a separate penalty tariff is imposed. Analysts flagged concerns about volume and margin pressures arising from slowing US demand and price absorption along the value chain.
'Bharat Forge has 25% exposure to the US market, and while it has local operations there, demand will still be affected," said Chirag Jain, an auto and electronics sector expert. Tata Motors' US exposure via Jaguar Land Rover is expected to remain insulated due to UK-US trade arrangements.
As per Jefferies, the impact of the proposed US reciprocal tariffs will vary across sectors.
In auto components, Bharat Forge (40-45% US revenue) may be more affected due to new duties on truck parts, while Sona Comstar (30-35%) sees limited impact as PV parts already face 25%. OEMs like Eicher Motors (3-4%) and Tata Motors' JLR (30-35%) face minimal risk due to low exposure or UK-EU trade cover.
In capital goods, Cummins, Thermax, and KEI have 5-15% US exposure, with China as an alternate source. Chemical exporters like Navin Fluorine (24%), PI Industries (20%), and SRF (6%) could be hit due to refrigerant gas tariffs. Pharma companies, especially Biocon, Sun Pharma, and Dr Reddy's, risk a 2-8% EPS hit in FY26 unless generics are exempted, Jefferies said.
Dixon, which gets around 10% revenue from the US, may see some pressure, but Syrma, Kaynes, and Polycab have low exposure. Refiners like Reliance Industries Ltd, Bharat Petroleum Corp. Ltd, and Hindustan Petroleum Corp. Ltd may be indirectly affected due to sourcing shifts.
Waaree Energies, with a 59% US order book, could be impacted. In textiles, firms like Welspun, Gokaldas, and Indo Count (40-70% US revenue) face competitiveness challenges versus China, Vietnam, and Bangladesh, it said.
Macroeconomic impact could be modest but real
According to Goldman Sachs, the proposed 25% reciprocal tariff by the US could cause an incremental drag of about 0.3 percentage points on India's real GDP growth in 2025, on top of a previously estimated 0.2 percentage point hit if tariffs above 10% are enforced.
The impact stems from India's goods exports exposure of around 4% of GDP to US final demand.
Goldman also flagged indirect risks from elevated trade policy uncertainty, which could delay investment decisions by Indian firms. On earnings, the brokerage estimates a potential 2% hit to MSCI India EPS if the new tariffs are enforced, considering both direct and second-order effects.
Despite this, it has not revised its 12% and 14% EPS growth forecasts for 2025 and 2026 but warns of downside risks.