Exporters from India scrambling for solutions to minimize the impact of Trump's tariffs
In the upcoming year, Indian merchandise exports valued at approximately $48.2 billion could be impacted by potential 50% US tariffs, according to recent reports. This move could have significant consequences for businesses and employment, particularly in export-dependent industries.
The key sectors expected to be affected include pharmaceuticals, manufacturing, agriculture, and the gems and jewellery industry. The pharmaceutical sector, a major exporter to the US, could face substantial hurdles, as the US is a significant destination for Indian pharma products. The automotive and auto parts sector, on the other hand, may experience a moderate impact due to limited direct exports to the US. IT services, being service-based, are minimally affected by tariffs.
Agriculture is a sensitive area in trade negotiations, and tariffs could increase pressure on agricultural exports and related businesses. Manufacturing and MSMEs, including chemicals, textiles, and small and medium enterprises, are also vulnerable under higher tariffs.
The gems and jewellery industry, which exported goods worth over $10 billion last year, is currently at a standstill due to the new tariffs. Gems, being luxury products, are particularly vulnerable to the increased tariffs, as customers may cut back when costs rise. Some exporters, like Gokaldas Exports, are considering boosting production in countries with lower tariffs, such as Ethiopia and Kenya.
The employment consequences could be significant in high employment-intensive export sectors, particularly those relying on US market access. The disruption could lower India’s domestic growth by around 0.5% or more, depending on tariff duration and retaliatory measures, with jobs at risk in affected export manufacturing sectors.
The Indian government is actively seeking to mitigate the impact through export promotion, trade diversification, and protecting farmers and workers. The final level of damage heavily depends on the evolution of US-India trade talks, including possible removal of tariffs linked to issues like Indian imports of Russian oil.
Pearl Global Industries, a top exporter, has reported that some US customers have asked for orders to be produced in lower-duty countries. If the issue is not resolved, there could be chaos, and business owners like Vijay Kumar Agarwal, chairman of Creative Group, a Mumbai-based textile and garment exporter with nearly 80% exposure to the US market, are worried for the future of their employees. Some of India's biggest apparel makers are considering moving their US orders to lower-duty countries like Vietnam or Bangladesh.
Seafood exporters are hoping to diversify their markets due to the hold on US shipments, and are looking towards markets like China, Japan, and Russia. The gems and jewellery industry, the automotive and auto parts sector, and the agriculture sector are all facing similar challenges.
Prime Minister Narendra Modi has spoken to both Putin and Ukrainian President Volodymyr Zelensky, urging a "peaceful resolution" to the conflict. The Global Trade Research Initiative estimates a potential 60% drop in US sales in 2025 in sectors such as garments. The situation is delicate for India, one of the world's largest crude oil importers, which has until August 27 to find alternatives to replace around a third of its current oil supply from abroad.
In summary, the potential 50% tariffs pose substantial challenges to Indian exporters in various sectors, with considerable risks to employment in these sectors. Government efforts aim to cushion the economic and employment fallout amid ongoing trade negotiations. However, the situation remains uncertain, and businesses and employees are bracing for potential disruptions.
- Who could face substantial hurdles due to the potential 50% US tariffs on Indian merchandise exports is the pharmaceutical sector, as the US is a significant destination for Indian pharma products.
- US customers have asked Pearl Global Industries, a top exporter, to produce orders in lower-duty countries, highlighting the impact of potential 50% US tariffs on business.
- In the gems and jewellery industry, which exported goods worth over $10 billion last year, exporters like Gokaldas Exports are considering boosting production in countries with lower tariffs due to the new tariffs imposed.
- The automotive and auto parts sector, on the other hand, may experience a moderate impact due to limited direct exports to the US, according to recent reports about the potential 50% US tariffs.
- China, Japan, and Russia are potential markets seafood exporters are looking towards, as they hope to diversify their markets due to the hold on US shipments caused by the potential 50% US tariffs.
