Beginning August 27, India faces one of the most severe trade shocks in recent history, as the United States enforces a sweeping 50% tariff on a wide range of Indian products.

This move comes on top of an already existing 25% punitive duty introduced earlier under the Trump administration, primarily as a retaliatory measure against India’s continued purchases of Russian crude oil and defence equipment.

The escalation in tariffs is expected to destabilise India’s export-driven growth sectors, disrupt labour-intensive industries, and create ripple effects across both the Indian and US economies.

According to estimates by the Global Trade Research Initiative (GTRI), nearly two-thirds of India’s exports to the US—worth close to $60 billion annually—fall under the latest tariff regime.

India’s current exports to the US total approximately $86.5 billion, making the US its single largest export destination with an 18% share in India’s total goods exports. Under the new tariff structure, although 30% of exports will remain duty-free and 4% will continue to attract 25% duty, a massive 66%—covering goods worth $60.2 billion—will now face 50% tariffs.

This steep increase will render many Indian products uncompetitive in American markets, pushing importers and retailers to source more from rival exporters such as China, Vietnam, Mexico, and Turkey.

The most vulnerable industries are those that rely on cost competitiveness and operate on tight margins. Sectors such as textiles, gems and jewellery, carpets, shrimp, handicrafts, and wooden furniture are expected to be hardest hit.

These industries are not only export-dependent but also labour-intensive, employing millions across small and medium enterprises (SMEs). For instance, in textiles, factory owners highlight that with razor-thin margins, absorbing such high tariffs is impossible.

Importers in the US are unlikely to bear the costs, leaving consumers to face higher prices and Indian exporters to suffer shrinking orders. This could trigger widespread lay-offs, factory closures, and disruptions across rural and semi-urban areas where these industries are concentrated.

The Indian government finds itself caught in a delicate policy dilemma, as highlighted by former ICAI president Ved Jain. On one hand, abandoning discounted Russian oil imports would undermine India’s energy security and raise domestic costs significantly, making the economy less efficient.

On the other, persisting with these purchases leaves the country exposed to aggressive US trade retaliation, jeopardising critical export earnings.

In essence, India is confronted with choosing between higher domestic energy inefficiency or an external trade loss that weakens its growth momentum.

The economic consequences will extend beyond India. US consumers are expected to encounter higher prices on categories ranging from apparel and jewellery to seafood. American importers, already operating under inflationary pressures, will be forced to pass on the increased costs to end buyers.

This poses risks to the US economy, which continues to grapple with inflation above its 2% tolerance threshold. As economist SP Sharma cautions, the tariff hike is likely to elevate inflation further, slowing US consumption, undermining growth, and possibly triggering a broader economic slowdown reminiscent of the lacklustre 1.4% growth rate recorded in Trump’s earlier tenure.

The fallout points toward a dual crisis: India faces export contraction and job losses, while the US risks stagflation pressures. Projections indicate that India’s exports to the US could shrink drastically from $86.5 billion to $49.6 billion by FY26, representing a $37 billion loss in hard export revenue.

Competitor nations such as China, Vietnam, and Mexico will fill this vacuum, strengthening their trade foothold with the US at India’s expense. The shift could have long-term implications, as once buyers realign their supply chains, regaining lost market share becomes difficult, if not impossible.

In conclusion, the US’s sharp tariff escalation is set to be a lose-lose arrangement—inflicting significant economic hardship on Indian exporters, threatening millions of jobs in labour-intensive sectors, and exacerbating inflationary strains in the US.

For India, the immediate policy imperative will be to diversify export markets, enhance resilience in domestic manufacturing, and engage in high-level diplomacy to negotiate tariff relief or carve out sectoral exemptions.

Unless addressed through strategic intervention, the move risks derailing India’s export-driven growth trajectory while simultaneously exposing vulnerabilities in the US economy itself.

Based On NDTV Report