US-Imposed 50% Tariffs on Indian Exports Pose Risk to $87 Billion Trade, Experts Predict Short-term Struggles but Long-term Durability
The recent increase in US tariffs on Indian exports, reaching up to 50% on many goods, presents significant long-term challenges for India’s $434 billion export sector, particularly in textiles, leather, and engineering goods. However, this situation also creates diversification opportunities as India seeks to redirect exports towards alternate markets and enhance competitiveness through trade agreements and domestic reforms.
The tariff hikes affect the competitiveness of Indian MSMEs in textiles and leather, making them less price competitive compared to countries like Vietnam and Bangladesh, which have lower US tariffs. This could potentially result in a loss of market share.
Sectoral impacts vary, with products like furniture and dairy seeing dramatic tariff increases, while pharmaceuticals, electronics, and critical minerals remain tariff-free. The heightened tariffs could reduce Indian GDP growth forecasts from around 6.5% to as low as 6%, with engineering exports alone potentially dropping by $4–5 billion.
The geopolitical and trade policy context of the tariff increase is tied not only to trade balance concerns but also to India’s oil imports from Russia and its BRICS membership, with the US using tariffs to pressure India on these issues.
Long-term diversification opportunities and strategic responses include seeking new export markets, particularly in ASEAN, African, Middle Eastern, and European markets. India may also pursue deeper trade deals that reduce tariff barriers and improve market access, while simultaneously lowering its own trade barriers to address US reciprocity concerns.
Enhancing competitiveness through investments in product quality, supply chain efficiency, and technology can help Indian exporters compete better globally under a harsher tariff regime. Strengthening sectors exempt from tariffs, such as pharmaceuticals and electronics, could provide growth levers. Managing rupee depreciation and inflation risks from tariffs will be critical to maintaining export viability.
The escalation follows difficult trade negotiations and longstanding US criticism of India's high tariffs and non-monetary trade barriers. For the medtech sector, the tariff increase could force localisation and potentially make India a global health tech manufacturing hub.
With USD 87 billion worth of Indian exports to the US now at risk, the stakes are high. However, the economy remains relatively insulated compared to export-heavy Asian peers, as merchandise exports to the US account for only 2.2% of India's GDP.
The move is a punitive step, citing "national security" concerns. India has extended an invitation for talks and welcomed an understanding between the US and Russia for a leaders' meeting in Alaska on 15 August, and New Delhi endorsed the summit, noting it could help end the Ukraine conflict and open prospects for peace, potentially easing the geopolitical tensions underpinning the tariffs.
Sources: [1] Business Today. (2021, August 10). US tariffs on India: What's at stake and what it means for the economy. https://www.businesstoday.in/current/economy-politics/us-tariffs-on-india-whats-at-stake-and-what-it-means-for-the-economy/story/438737.html
[2] The Economic Times. (2021, August 10). US tariffs on India: What's at stake and what it means for the economy. https://economictimes.indiatimes.com/news/economy/policy/us-tariffs-on-india-whats-at-stake-and-what-it-means-for-the-economy/articleshow/85624143.cms
Amidst this increased competition, there is a need for India's MSMEs to redefine their vision and strategies, with a focus on growth in non-US markets to maintain a competitive edge. Despite the challenges, the intensified tariffs could potentially offer India an opportunity to strengthen its news and sports industries by localizing manufacturing processes, especially in the medtech sector.
