Let’s Understand “Trump Bhaiya Ka Tariff”

What was Announced

On April 2, 2025, former U.S. President Donald Trump announced the imposition of reciprocal tariffs on multiple countries, including a 26% tariff on Indian exports to the United States, effective April 9, 2025. This move was framed as part of his broader "America First" trade policy aimed at countering what he described as unfair trade practices. Trump justified the action by citing disparities in tariff structures, highlighting examples such as India’s 70% tariff on motorcycles versus the U.S.’s 2.4%. Prior to this, a universal 10% tariff on all imported goods, including from India, was announced with an effective date of April 5, 2025. The India-specific 26% tariff was a targeted escalation, raising the total applicable tariff to 36% on Indian goods. These measures signal a strong stance on trade imbalances and have raised concerns about cost pressures for both Indian exporters and U.S. consumers.

India’s Export Growth Reflects Economic Strength, But Trade Imbalance Signals Underlying Pressures

India’s exports during April to December 2024 rose by 6.03% to USD 602.64 billion from USD 568.36 billion a year earlier, showing the economy’s ability to hold steady in a changing global environment. In FY 2023–24, petroleum products remained one of India's largest export contributors, supported by stable global demand. Gems and jewellery saw a sharp decline of 14.5%, largely due to weaker demand in major markets like China. Electronics emerged as a strong performer with a 35.11% year-on-year growth in December 2024, driven by higher production and export incentives. Engineering goods maintained steady momentum, recording an 8.35% rise in exports in December 2024. Rice exports surged by 64.03% in the same period, supported by favourable agricultural output and strong overseas demand. Ready-made garments (RMG) of all textiles grew by 12.89%, and cotton yarn/fabrics/handloom products rose 11.98% year-on-year in December 2024. Pharmaceuticals continued to provide consistent export support, though without headline-making growth. Machinery exports gained prominence due to enhanced domestic manufacturing capacity and higher-value output. Iron ore also saw positive contribution, fuelled by steady demand from key global buyers. Despite some sector-specific headwinds, India’s merchandise exports showed a partial recovery, though total goods exports declined 3.11% in FY24 and were offset by robust services growth, keeping overall exports nearly flat at $776.68 billion.

Despite this, overall merchandise exports in December dipped slightly compared to last year, and imports rose, leading to a higher trade deficit of USD 6.78 billion for the month. Over the nine months, the trade gap grew by 14.11% to USD 79.50 billion, which points to strong domestic demand and higher import bills. Services exports, which are usually steady, also fell in December, possibly due to temporary factors. For experienced market watchers, these mixed numbers tell a story of an economy trying to build new strengths while still facing old challenges.

Source : ​Indianarrative

Impact on Industries

India's Pharma Industry

The 2025 U.S. tariff hike has created both headwinds and opportunities for India’s pharmaceutical industry. With exports to the U.S. accounting for over 30% of India’s ~$28 billion pharma exports, increased tariffs (up to 27% on select categories) have pressured margins, especially in generics and specialty drugs, amid tight U.S. pricing dynamics and cautious procurement. Rising input costs, slower FDA clearances, and longer payment cycles are compounding challenges. However, higher tariffs on China (~35%) have created a tariff arbitrage, opening long-term opportunities for Indian drugmakers in APIs, sterile injectables, and contract manufacturing. If supported by policy initiatives and supply chain realignment, India could emerge as a stronger alternative to China in the U.S. pharma market despite near-term volatility.

Source : The Economics Times

Textile and Apparel industry

The tariff now forces Indian manufacturers to either absorb the cost hit or risk losing U.S. clients to competitors. While Bangladesh and Vietnam face even higher tariffs (37% and 46%, respectively), Indian firms have limited room to scale or undercut them in the short term due to structural constraints in manufacturing capacity and labour flexibility. Small and medium enterprises (SMEs) in export hubs like Tiruppura, Ludhiana, and Surat are particularly vulnerable, with reports of order cancellations, delayed shipments, and payment renegotiations. This is not just a trade issue but a domestic employment risk, as the textile sector supports over 45 million workers directly and indirectly. The labour-intensive nature of the industry means any sustained slowdown in exports could lead to job losses and operational downsizing. On the policy front, while India has production-linked incentive (PLI) schemes and a roadmap for textile parks, these are long-term solutions. In the near term, exporters are urging the government to fast-track Free Trade Agreements (FTAs) with the U.S. and EU and offer interest subvention and rebate schemes to mitigate the cash flow stress. Without such support, the tariff shock could cause permanent market share loss in the highly competitive U.S. apparel segment, making it difficult for Indian players to reclaim footing even if tariffs are relaxed in the future.

India's Diamond Industry

The U.S. has imposed a 27% tariff on Indian gem and jewellery exports, significantly impacting India's diamond sector, particularly in Surat, which processes over 80% of the world's rough diamonds. The U.S. market previously accounted for over 30% of India's $32 billion gem and jewellery exports. This tariff compounds existing challenges from declining demand in key markets like China, the Middle East, and Europe. Industry leaders anticipate reduced demand, potential factory closures, and significant job losses, especially among smaller manufacturers. The newly inaugurated Surat Diamond Bourse, aimed at boosting employment and trade, may also be affected. Exporters are rushing to fulfil existing orders before the tariffs take full effect but concerns about order cancellations and long-term setbacks persist. Given the lack of alternative markets matching U.S. demand, the livelihoods of millions connected to the diamond industry are at risk.

Other Impacts

Weaker Dollar → Increased FII Flows to India :

• Dollar Index: Declined from 104.3 (Feb 2025) to 101.6 (Apr 2025), making EM assets more attractive.

• Impact: Equity and debt inflows improve — net FII inflow into Indian equity was $4.2 billion in March 2025, a 9-month high.

Crude Oil Prices Ease (India is the 3rd largest importer) :

• WTI Crude Price: Down from $84.5/barrel (Feb) to $77.8/barrel (early Apr 2025) post U.S. tariff news.

• Impact: For every $10 drop in crude, India saves ~$15 billion annually on import bill and reduces CPI inflation by 20–30 bps.

FTA Opportunity with Europe (Tariff Diversion)

• India–EU FTA negotiations resumed in Feb 2025. With global fragmentation, India could emerge as an alternative supplier.

• Impact: Especially positive for pharma, auto components, defence electronics where EU import dependency on China is falling.

Risk of dumping of goods in India :

Following steep U.S. tariffs on Chinese goods (up to 54%), there is a growing risk of China dumping excess inventory into India at discounted prices, particularly in sectors like electronics, chemicals, solar modules, and textiles. This influx threatens Indian manufacturers by undercutting prices, compressing margins, and jeopardizing the survival of SMEs. With India’s imports from China exceeding $100 billion in FY24, authorities have intensified anti-dumping investigations, tightened BIS quality norms, and are considering countervailing duties to shield domestic industries. While consumers may benefit from lower prices short-term, unchecked dumping poses long-term risks to India's manufacturing competitiveness and economic resilience.