Trade Sanctions Bite Back for India as US Tariffs Prove Hard to Digest
The US import duties on Indian goods, effective from August 2025, are expected to have a minimal impact on India’s GDP in the near term, reducing it by about 0.19%, and lowering exports to the US by approximately 1.87%. According to the PHD Chamber of Commerce and Industry (PHDCCI), this impact is limited due to the relatively small proportion of exports affected by the tariffs.
However, the picture may change in the long term. Some assessments suggest that India could lose competitiveness in exports worth around $64 billion due to increased tariffs and related geopolitical tensions. This potential loss extends beyond the immediate $8.1 billion targeted by the tariffs.
The US-India trade relationship has been strained due to these tariffs, a result of the ongoing tensions between the two nations. The US is importing from China at a proportionally higher rate than any other nation, with a 13% rise in 2025. Diversification to other markets, including India, has become a necessity for India due to the increased tariffs on its goods.
The US-India trade deal is a priority for India this month, despite the difficulties in negotiation with Trump's hardball tactics. The US President, Donald Trump, has maintained a transactional approach in his foreign policy, prioritizing American interests over personal friendships. This perceived favoritism towards Pakistan could potentially have a significant impact on the US-India relationship in the long term.
The tariffs will affect various sectors, including gems and jewellery, pharmaceuticals, industrial machinery, smartphones, seafood, and others. A dip in exports to the US could affect India's GDP, which is currently estimated at $4.187 trillion. The US trade surplus with India was around $46 billion in 2024, after shipping goods worth around $87.4 billion.
Goldman Sachs has slightly trimmed India’s GDP growth forecast by 0.1 to 0.2 percentage points for 2025 and 2026 respectively, primarily attributing the downgrade to increased uncertainty affecting trade and investment decisions rather than the tariff impact alone. Uncertainty and potential further tariff increases are considered bigger risks than the immediate tariff costs.
In conclusion, while increased US import duties impose some trade costs and pressure on export competitiveness, the overall impact on India’s GDP and trade balance with the US is limited in the near term. However, potential larger effects dependent on future tariff escalations and geopolitical factors could pose significant challenges for India in the long term.
[1] PHDCCI Report, [Link] [2] Reuters Report, [Link] [3] Goldman Sachs Report, [Link] [4] Reserve Bank of India Report, [Link]
- The potential loss of competitiveness in exports worth around $64 billion, as a result of increased tariffs and geopolitical tensions, could impact not only the trade industry but also the finance and business sectors, as noted in the PHDCCI report.
- The US-India trade deal, a priority for India this month, is expected to extend beyond business and politics, affecting the general news landscape due its potential significant impact on the US-India relationship in the long term, as predicted in various reports, including the ones from Reuters and Goldman Sachs.
