A 50 percent tariff on Indian goods entered into effect on Wednesday, marking one of the highest US tariff rates in recent years and raising questions about the future of Washington–New Delhi trade relations.
The measure follows two earlier tariff rounds – 25 percent on July 30 and an additional 25 percent a week later – and will now cover a wide range of Indian exports, including gems and jewellery, textiles, footwear, furniture, and industrial chemicals.
Analysts say the move could sharply reduce India’s competitiveness compared to regional peers and impact Prime Minister Narendra Modi’s economic strategy of turning the country into a global manufacturing hub. The United States has been India’s largest trading partner, with bilateral trade valued at $212 billion in 2024.
Sectors Most Affected
According to the Global Trade Research Initiative (GTRI), Indian exports to the US could decline from $86.5 billion in 2025 to about $50 billion by 2026. Labour-intensive sectors such as textiles, garments, gems and jewellery, leather goods, carpets, and fisheries are expected to be among the hardest hit, with some industries bracing for a 70 percent drop in exports.
Experts note that smaller enterprises may struggle to absorb the shock, losing market share to competitors in Vietnam, Bangladesh, and other Asian economies.
Exemptions
The Indian pharmaceutical industry has been exempted from the tariff hike, reflecting the sector’s importance in supplying affordable generic medicines to the US market. In 2024, Indian pharmaceutical exports to the US amounted to $8.7 billion.
Semiconductors, electronics, steel, aluminium, and passenger vehicles will be subject to separate, sector-specific tariffs.
India’s Response
Prime Minister Modi has pledged support for affected industries through tax relief, subsidies, and diversification of export markets. Measures under consideration include expanding trade with Latin America, the Middle East, and the European Union, alongside policies to promote self-reliance and domestic manufacturing capacity.
Economists estimate that the overall GDP impact of the tariffs could be less than 1 percent, though certain export sectors may face significant disruption.
Outlook
While India weighs new trade agreements and market diversification, policymakers are expected to reassess reliance on the US market. Analysts suggest the tariffs could accelerate India’s push toward boosting domestic industries and strengthening alternative global trade partnerships.
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