Tackling The Tariff Bully: How India Can Break The Shackles

The Trump administration, with its latest action, dealt a body blow to bilateral trade, and has put a violent end to the robust strategic relations between the two countries. 

Alyssa Ayres, the Dean of Elliott School of International Affairs at George Washington University and a former US State Department official, has aptly described the deterioration in the India-US relationship as "head spinning".

But Trump remains nonplussed. His cosying up with the terror state of Pakistan has greater salience today than the carefully curated strategic relationship with India.

Trump is waging a one-sided trade war with leaders from the East and the West, with many developed and developing nations capitulating to his demands. Today, sovereign leaders are signing on dotted lines, succumbing to whatever Trump wishes, allowing unrestricted entry of US products into their countries.

Not A Football Match

Trade negotiations are neither football nor T20 cricket matches, which can be decided in hours. A genuine trade negotiation between two sovereign nations takes years to negotiate painstakingly and often runs into hundreds of pages.

Seemingly, Trump has converted trade deals into a sham, with tariffs announced over his Truth Social handle, or worse, during telephone calls. 

One Nation, One Man Standing

Amid this chaos, confusion and arm-twisting, one nation — India; and one-man — Prime Minister Narendra Modi, is standing tall. 

Modi has vowed not to yield to the pressure. He said, in a recent speech in Gujarat, that he will protect the interest of the farmers. “For me, the interest of farmers, small businesses and dairy are topmost. My government will ensure they aren’t impacted, he said."

What Will Trump Do 

There are no definitive answers on what the US President is planning. 

According to Global Trade Research Initiative (GTRI), a New Delhi-based think-tank, even if Trump does not raise additional tariffs, Indian exports to the US will fall to US$ 50 billion in FY2026, from US$ 86.5 in FY2025.

As per official data, exports to the US during April-July 2025 increased 21 per cent to over US$ 33 billion. That being the case, the Indian government expects the final exports to the US in FY 2026 to stand at around US$ 86 billion, which would be close to last year's exports.

Undoubtedly exports to the US shall be impacted, but at the end of the day, India may come out without getting bruised badly.

Sectors Hit Hardest 

Though it will take time to make an exact assessment of the impact of the 50 per cent tariff on exports from India to the US, the hardest hit is likely to be the labour-intensive sectors like apparel and textiles, gems and jewellery, auto components, carpets, handicrafts, agricultural food, shrimps, chemicals and machinery.

States Hit Hardest

Key exporting states of India to the US, along with their export bouquet, are given below. 

• Gujarat: Petroleum products, gems and jewellery, pharmaceuticals, chemicals, textile and fabric exports. electronics, engineering goods, and plastics
• Maharashtra: Gems and jewellery, pharmaceuticals, engineering goods, agricultural products (like pomegranates), organic chemicals, textiles, automobiles, auto parts, precious and semi-precious stones, leather goods  
• Tamil Nadu: Engineering goods, electronics goods, Ready-made garments of all textiles, cotton yarn/fabrics/made-ups, handloom products, leather goods, automobile components, electronics and IT hardware
• Karnataka: IT hardware and components, biotechnology products, pharmaceuticals, auto components, textiles, processed foods, and various engineering and electronics goods, aerospace items and clean energy products
• Andhra Pradesh: Seafood (particularly shrimp), various types of cotton fabrics and handloom products
• Telangana: Engineering goods, drugs and pharmaceuticals, textiles, gems and jewellery, and processed foods 
• Uttar Pradesh: Carpets. handicrafts, home decor, handmade wooden furniture, Chikankari and Zardozi apparel

Except for the sectors that are exempted from the reciprocal and secondary tariffs, the exports from all other sectors will be badly hit not only above states but also in other states exporting items in these sectors to the US. 

If the sanctions persist, the latest estimate of impact on FY 2026 GDP of the country ranges between .5 to 0.9 per cent.

Trade Embargo: Priced Out

It is crystal clear from the above scenario that Trump, by singling out India for his tariff regime, has at once put an embargo on exports from India, putting it at a 30-40 per cent tariff disadvantage vis-à-vis competitors. Losing the US market could have a cascading effect across supply chains — from yarn makers to embroidery units.

Accordingly, India must act on some key points:

Trump has overnight created a complete trust deficit. It is time for India to stand tall and make it clear that sovereignty of the nation is non-negotiable. 

Time to acknowledge that Trump’s tariff might be in place for a long haul. So India must radically reduce dependence on the US for its exports.

The sectors affected by the Trump tariff are highly labour-intensive. Irrespective of steps taken to ease the pain of tariffs, the immediate task facing the nation is “zero job losses”. How India handled Covid-19 provides a lesson. If jobs are protected, India and its export hubs can survive the worst.

The Modi government can also try and deepen the domestic market. The call of “self-reliance” and buying “Made in India' products can be pushed further. The bottom line is, till export markets are diversified, domestic consumption must be increased fast to absorb as much as US$ 40 billion worth of products that cannot be exported. 

Moreover, it is time for policymakers to unleash the next generation of reforms to ease out the pain to exporters. These can include, subsidy subventions, credit guarantee schemes, taxation waivers, fast rolling of GST reforms, compensation for freight subsidy, interest free loans and other hand holding.

In 2024 India’s export basket comprised few products. There were only 50 product categories where India exported goods worth US$ 1 billion or more. But it is time now to substantively up the ante by taking quantum jump in expanding exports and rapidly move up the value chain of exporting products

Though India exports to more than 235 nations, it relies extensively on a few nations, led by the US, for the bulk of its exports. As per Government data, India’s share of total exports to top 10 destinations are:   

• USA (17.73 per cent)
• UAE (8.15 per cent)
• Netherlands (5.12 percent)
• China (3.381 per cent)
• Singapore (3.3 per cent)
• Britain (2.90 per cent)
• Saudi Arabia (2.65 per cent)
• Bangladesh (2.65 per cent)
• Germany (2.25 per cent)
• Italy (2.01 per cent)

India will soon be the third-largest economy of the world and aspires to be a developed nation by 2047. If the country must succeed in its strategic mission, the crisis owing to Trump's tariff mania provides an opportunity to reimagine India’s export strategy and the time for purposive actions begin now. There is an immediate need to work on war footing to diversify both our export basket and destinations.

Breaking The Shackles

Trump tariff shackles have been set. Whether it is short term or medium-term pain, only the US President knows. The world is much bigger than the US and India must immediately start its urgent forays in exporting products and destination diversification along with deepening and expansion of the domestic markets.

Growing protectionism is a challenge, but there are opportunities as well. Opportunities include expansion of exports to BRICS nations and wrapping up FTAs with the European Union (EU), re-entering Regional Comprehensive Economic Partnership (RECP) a grouping of 15 nations.

Africa is a promising frontier, where Indian pharmaceutical and engineering goods already enjoy goodwill. Further, Latin American nations like Brazil, Mexico, Chile, have an appetite for Indian generics, IT services and auto components. The Middle East, especially the UAE and Saudi Arabia, remains a bright spot with free trade agreements under negotiation.

These are only a few of the promising spots. Challenges remain, but if India pushes resolutely, the sky is the limit. However, the key issue to be resolved is that India must reform to produce the cheapest products, and it must cut logistic costs to bare minimum.

Key exporting sectors also must look fast to take their production bases to where markets are, including to GCC, Asian countries and Latin America. India must forge a partnership with South Korea, Taiwan, China and Japan to produce cutting edge products at cheapest rates.

India must work with other nations to restore the global trade order proactively. Beginning with the Partition, India has survived many crises and has emerged strongly. Trump’s tariff regime is one more such crisis that needs to be negotiated boldly and imaginatively.

(This is Part 2 of a two-part series explaining the effects of Trump tariffs on India. You can read Part 1 here)

(The writer is a former civil servant. Views are personal)