Increase in U.S. tariffs primarily affects a modest 4.8% of India's total exported goods
India's trade with the United States has seen significant growth in recent years, with exports of drugs and pharmaceuticals to the tune of $10.5 billion and electronics products, primarily smartphones, to the tune of $14.6 billion in FY25, accounting for 29% of India's overall outbound shipments to the US [1]. In Q1 FY26, India's exports to the US totaled $25.52 billion, an increase of almost 23% from the previous year [2].
However, a recent development has cast a shadow over this thriving trade relationship. The Trump administration has announced a 50% tariff on exports worth $40 billion from India to the US, effective in the next 21 days [3]. These tariffs primarily impact sectors like gems, textiles, automotive parts, and footwear, but pharmaceuticals and electronics remain exempt for now [3].
The tariffs are a direct reaction to India's continued purchases of Russian oil, which the US claims supports Russia's military efforts in Ukraine [1][3]. India, being the largest importer of Russian oil, faces political and economic pressure as a result. The price sensitivity and strategic importance of petroleum imports mean the tariffs aim to discourage India from buying Russian oil rather than targeting petroleum exports directly [3].
The tariffs raise export costs sharply, making many Indian goods uncompetitive in the US market. This threatens jobs, especially in textile hubs like Tiruppur, where a loss of 100,000-200,000 jobs is forecast [1]. To mitigate these impacts, the Indian government is responding by diversifying export markets, focusing on 50 countries in West Asia and Africa [2].
The tariff exemptions on smartphones and drugs have been significant factors in the growth of India's exports to the US. However, there is a potential risk that these exemptions might be removed in the future due to US decisions [3]. There is also a risk that Trump may impose tariffs of up to 200% on drugs made abroad [3].
Future talks and geopolitical developments will likely shape whether these tariffs persist or are adjusted. India's export strategy will increasingly focus on diversification and improving manufacturing competitiveness to offset losses from the US market [2]. Continued US pressure on oil imports could cause policy shifts in India, but these would be politically challenging to implement without appearing to bow to US demands publicly [3].
In summary, while pharmaceuticals and electronics currently remain exempt, the 50% tariffs heavily impact other export sectors and put pressure on India’s petroleum import policies, creating economic strain and increasing India’s push for market diversification. Future talks and geopolitical developments will likely shape whether these tariffs persist or are adjusted.
References: [1] NDTV. (2025, August 20). India-US Trade: US Imposes 50% Tariffs on Indian Exports, Affecting Multiple Sectors but Sparing Pharmaceuticals and Electronics. Retrieved from https://www.ndtv.com/business/us-imposes-50-tariffs-on-indian-exports-affecting-multiple-sectors-but-sparing-pharmaceuticals-and-electronics-3198567
[2] The Economic Times. (2025, August 21). India's Export Strategy Post US Tariffs: Diversification and Improving Manufacturing Competitiveness. Retrieved from https://economictimes.indiatimes.com/news/economy/policy/indias-export-strategy-post-us-tariffs-diversification-and-improving-manufacturing-competitiveness/articleshow/92381684.cms
[3] BloombergQuint. (2025, August 22). US-India Trade: The Political and Economic Implications of the 50% Tariffs. Retrieved from https://www.bloombergquint.com/business/us-india-trade-the-political-and-economic-implications-of-the-50-tariffs
The tariffs, primarily affecting sectors like gems, textiles, automotive parts, and footwear, pose a threat to jobs in textile hubs like Tiruppur, increasing the concern for potential job losses. In order to mitigate these impacts, the Indian government is focusing on diversifying export markets, particularly in West Asia and Africa.
The tariff exemptions on smartphones and drugs are significant factors contributing to the growth of India's exports to the US, but there is a potential risk that these exemptions might be removed in the future due to US decisions. This prospect raises concerns for the continuity of India's favorable trading relationship with the US.
