Trump’s 25% Tariff on India: A Trade Blow or Just a Negotiation Nudge?
~By Sumon Mukhopadhyay
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On July 30, 2025, in a move that has stirred global supply chains and jolted policy circles, the US President Donald Trump has announced a 25% tariff on select Indian exports, targeting sectors such as:
🔹Textiles and garments.
🔹Gems and jewellery.
🔹Electronics (including smartphones and components).
🔹Footwear and auto-parts and
🔹Marine products, with an unspecified penalty tied to India’s trade barriers and its energy and defense ties with Russia.
There are also concerns that Apple’s iPhone export plans from India to the U.S. may face turbulence. However, key sectors like pharmaceuticals, IT services, defense components, and energy commodities are currently exempt from these tariffs—revealing a calibrated strategy rather than a blanket trade war.
Predictably, headlines have exploded, sparked concerns among India exporters and speculation is running wild. But beyond the media noise, how serious is this move? Could it derail India’s growth momentum—or is this just another round of Trump’s hardball tactics on the global stage?
A closer analysis reveals that India’s diversified economy, strategic exemptions, competitive positioning, and ongoing trade negotiations will likely minimize the impact. Here’s why India is well-equipped to navigate this tariff storm.
Strategic Exemptions Shield Key Sectors:
A critical factor softening the blow of Trump’s tariffs is the exclusion of pharmaceuticals, IT services, defense components, and energy commodities from the 25% duty. India, a global leader in generic drug production, supplies 45% of U.S. generic medicines and 15% of biosimilars by volume, with $8.73 billion in pharma exports to the U.S. in 2024. The exemption reflects the U.S.’s reliance on India’s affordable drugs, as tariffs would likely inflate healthcare costs for American consumers—a politically sensitive issue.
Surya Patra, Vice President at Philip Capital, noted that imposing tariffs on Indian pharmaceuticals would hurt US consumers more than Indian drugmakers due to India’s cost competitiveness. Companies like Sun Pharma, Dr. Reddy’s, and Cipla, with significant U.S. exposure, are insulated, especially as many have U.S.-based manufacturing facilities to mitigate import duties.
Competitive Edge in a Shifting Trade Landscape:
India’s textile and apparel sector, which sent $9.6 billion to the U.S. in FY24 (28% of total textile exports), faces challenges but retains a competitive edge. The U.S. has imposed varying tariffs on other countries as part of its “reciprocal trade” policy, providing a comparative perspective:
| Country | Announced U.S. Tariff Rate | Effective After Aug 1, 2025 | Relative Position |
|---|---|---|---|
| Bangladesh | 35–37% | Yes | Very high; serious challenge for apparel |
| Cambodia | Up to 49% | Yes | Extremely high and disruptive |
| Vietnam | 46% → ~20% | Yes (after deal) | Moderately competitive post-negotiation |
| Indonesia | 32% → ~19% | Yes (after deal) | Competitive after reduction |
| Philippines | ~20% → ~19% | Yes (after deal) | Tariff advantage over India |
| India | 25% (plus unspecified penalty) | Yes | Mid-range; worse than ASEAN peers, better than LDCs |
Note: Tariff adjustments for Vietnam, Indonesia, and the Philippines occurred after bilateral talks, indicating the potential for India to secure similar relief.
India’s 25% tariff is lower than those on Bangladesh (35–37%), Cambodia (up to 49%), and Vietnam’s initial 46%, giving India a relative cost advantage in textiles and apparel, where it holds a 9% share of US imports.
Mithileshwar Thakur, Secretary General of the Apparel Export Promotion Council, emphasized India’s “intrinsic strength” in apparel due to its complete value chain and diverse offerings. While ASEAN peers like Vietnam and Indonesia secured tariff reductions through bilateral talks, India’s ongoing negotiations with the U.S. signal potential relief by September–October 2025.
Electronics: A Growing Advantage:
The electronics sector, particularly mobile phone exports like iPhones assembled in India, is another area of resilience. The U.S. imposes zero tariffs on fully assembled phones, while India levies a 15% tariff on similar imports, making Indian electronics competitive even with the 25% tariff.
Pankaj Mohindroo, Chairman of the India Cellular and Electronics Association, noted that India’s electronics ecosystem is “favourably placed” compared to China, Vietnam, and Thailand, which face higher tariffs. The Production Linked Incentive (PLI) schemes are driving India’s shift toward high-tech manufacturing, attracting investments from global giants like Apple and reducing reliance on U.S. exports.
Diversified Markets and Diplomatic Leverage:
Unlike countries such as Vietnam or Bangladesh, India’s GDP is largely powered by domestic consumption, infrastructure investment, and robust services exports (Eg. IT and software), cushioning it against trade disruptions. In 2023-24, US - India merchandise trade totaled $119 billion, but India has diversified its export markets through agreements like the India-UK FTA, signed on May 6, 2025, which aims to boost bilateral trade by £25.5 billion annually by 2040. This reduces India’s reliance on the U.S. market.
India’s strategic importance as a counterweight to China in the Indo-Pacific gives it leverage in trade talks. Union Commerce Minister Piyush Goyal is confident of securing a “balanced and comprehensive” bilateral trade agreement (BTA) with the US by fall 2025.
Meanwhile, the Centre for Strategic & International Studies highlights that India’s geopolitical value ensures the US is unlikely to risk long-term antagonism. The tariff adjustments secured by Vietnam, Indonesia, and the Philippines after negotiations suggest India could achieve similar concessions.
Limited Economic Impact and Market Resilience:
The tariff’s economic impact is expected to be modest. Morgan Stanley estimates that a 10% tariff hike would reduce India’s growth by just 30 basis points, a minor dent given India’s robust domestic economy and favorable demographics.
The Observatory of Economic Complexity projects a $5.9 billion reduction in India’s 2026 US exports due to a 10% tariff increase—significant but manageable within India’s $450 billion export economy. India’s equity markets have remained unfazed, buoyed by strong domestic investor participation, earnings growth, and foreign direct investment inflows, signaling confidence in India’s growth trajectory.
In sectors like jewellery (30% of exports to the U.S.), India’s higher tariffs on US imports (20% on gold jewellery Vs 5.5–7% in the US) provide negotiating room. The auto sector, focused on components rather than vehicles, benefits from exemptions, while marine products and footwear face challenges but represent smaller export shares.
Strategic Adaptability and Cost Pass-Through:
Indian companies, particularly in pharmaceuticals and electronics, can pass tariff costs to US consumers without losing significant market share. Dilip Shanghvi, MD of Sun Pharma, indicated that Indian pharma firms could offset costs through price hikes, leveraging their cost competitiveness. Investments in US based manufacturing by firms like Lupin and Aurobindo further reduce exposure. India’s push into markets like Europe and Africa, alongside its PLI - driven manufacturing growth, enhances its ability to absorb tariff shocks.
India’s Export Dependence on the U.S.: A Perspective:
In FY2024 – 25, India exported approximately $87.4 billion worth of goods to the United States. With India’s GDP estimated at around $3.385 trillion, this places goods exports to the U.S. at roughly 2.6% of GDP.
When factoring in services exports—which include sectors such as information technology (IT), business process outsourcing (BPO) and pharmaceuticals—the total export volume to the U.S. is higher. Estimates suggest that combined goods and services exports to the U.S. make up around 3% to 3.5% of India’s GDP.
This indicates that while the US remains a key trading partner, India is not too reliant on U.S. trade flows. In fact, India’s total exports of goods and services account for about 22.45% of its GDP, and imports contribute approximately 26.9%, resulting in total trade making up nearly half of the country’s economic output.
In macroeconomic terms, even in the event of tariff escalations or trade friction, the impact on India’s broader economy would be limited. The country’s diversified export destinations, robust domestic consumption, and growing internal demand offer a strong cushion against external trade shocks.
Conclusion: A Tactical Nudge, Not a Knockout:
Trump’s 25% tariff, while disruptive, seems more like a negotiation tactic rather than a long-term trade barrier. India’s strategic exemptions, competitive positioning, diversified markets, and diplomatic leverage position it to mitigate the impact.
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