Trump’s tariffs take effect, threaten to slow down GDP growth to under 6 percent
Exporters await emergency credit lines from the government and need to diversify business beyond the US
Aug 27, 2025, 12:33 IST5 min
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The worst fears for the Indian government and US-focussed exporters have come true, as the United States government has moved ahead to double trade tariff from India to the US, to 50 percent. The tariffs take effect from 12.01 Eastern Daylight Time (09:20 am India time).
A 21-day window, which started on August 7, to negotiate and arrive at a solution to lower the tariff, appears to have come to a nought.
India’s stock markets are closed today due to a public festival, but investors already reacted nervously on Tuesday, with key indices falling one percent each, fearing lower growth due to the tariffs. Brokerage houses expect Indian stocks to drag down further but bottom-fishing cannot be ruled out on declines.
On Wednesday, China’s stock markets were up amid the Trump tariff concerns, with the Shanghai Composite index up 0.17 percent at 3,874.7—close to its 10-year highs—while the broader Shenzhen Component Index rose 1.45 percent to 12,654.4.
For India, if the tariffs are not reduced, it raises a distinct possibility of the pace of growth slowing for FY26. Most economists, rating agencies and financial institutions have pegged India’s growth between 6.3 and 6.5 percent for the year to March 2026.
India, though, has a low global share in the manufacturing space and is expected to be able to weather the storm.
By doubling the tariff, The Trump administration has decided to penalise India for its continued import of oil from Russia. The tariff levels, if they sustain, will disrupt business incomes of US-based exporters, jobs in these sectors, capital flows, and bring volatility into domestic markets as investors navigate through uncertainties.
The sectors, which are most impacted, are jewellery and diamond exports, textiles, shrimp and agrifood, carpets, steel, aluminium, copper, alongside footwear and chemicals.
The Global Trade Research Initiative (GTRI) report of August 2025 says 66 percent of India’s $86.5 billion exports—$60.2 billion in goods—will be impacted. Nearly a third of US-bound exports ($27.6 billion) remain duty-free, which will include pharmaceuticals, APIs and electronics.
Strategic shock, but can weather storm
“This is a strategic shock that threatens India’s longstanding foothold in US’s labour-intensive markets, risks mass unemployment in export hubs, and could weaken India’s participation in global value chains,” Ajay Srivastava, a former Indian government trade officer and founder of GTRI, says in the report.But Srivastava also adds that India can weather this storm with swift action, which could be in the form of “emergency credit for the affected sectors, faster diversification to the EU, EAEU, the UK, the Gulf, and East Asia, high-level diplomacy with Washington, and stronger domestic competitiveness to contain long-term damage.”
Last week, the commerce ministry, responding to a Lok Sabha query, says that around $48.2 billion of India’s merchandise exports (based on 2024 trade value) to the US will face the additional tariffs.
“The move will severely disrupt the flow of Indian goods to its largest export market,” Federation of Indian Export Organisations (FIEO) president SC Ralhan said, describing the development “as a setback”. It can severely impact India's exports to the US, with approximately 55 percent of India’s US-bound shipments (worth $47–48 billion) now exposed to pricing disadvantages of 30–35 percent, rendering them uncompetitive in comparison to its competitors from China, Vietnam, Cambodia, Philippines and other Southeast and South Asian countries.
The US is India’s largest export destination, accounting for 18 percent of total exports and 2.2 percent of GDP.
FIEO said textiles and apparel manufacturers in Tirupur, Noida, and Surat have halted production amid worsening cost competitiveness. “This sector is losing ground to lower‑cost rivals from Vietnam and Bangladesh,” he said. While for seafood, especially shrimps, the tariff increase risks stockpile losses, disrupted supply chains, and farmer distress as the US market absorbs nearly 40 percent of Indian seafood exports.
When the tariffs were first announced in July, the foreign ministry, in an official statement, had called the additional 25 percent tariffs and targeting of New Delhi "unfair, unjustified and unreasonable”.
GST reliefs not enough, fear snowballing effect
The government has announced a series of measures to rationalise goods and services tax (GST) slabs, which are expected to come into effect in late-September. Some experts say the new rates could cushion the blow of increased tariffs, though this is unlikely to provide a major relief. “At 50 percent US rates, the GST or other tax reliefs may not be enough,” says Sakshi Gupta, principal economist at HDFC Bank.She forecasts India’s GDP growth for FY26 at “under 6 percent”. “There has to be considerable fiscal support that needs to be provided to the exporters. It can be in the form of subsidies or some other manner,” she told Forbes India. Gupta had pegged India’s GDP growth at 6.3 percent for FY26.
Gupta says if the US tariffs sustain at 50 percent level, there would be a 40-60 basis points downside to this earlier India forecast.
The bigger concern is the snowballing effect, which the tariffs could have over the medium term. “It is difficult, at this stage, to estimate the ultimate impact these tariffs will have. But it will impact the investment plans of export houses, hiring and salaries, potential job cuts, and vendors that are dependent on them. There are several second-round effects,” she said.
But GTRI’s Ajay and HDFC Bank’s Gupta agree that there will be opportunities for Indian export houses to diversify further, “We could see this happen in organic chemicals, machinery, minerals sectors,” she said. “A problem is, if some exporters are too dependent on the US markets, finding replacement demand is going to be a challenge—it cannot be done overnight.”
India forecasts its exports to touch $2 trillion by 2030 from the current $825 billion in FY25.
Over the short term, India’s stock markets are likely to be impacted and could decline due to the nature of the Trump administration. A swift resolution to the Russia-Ukraine war could however spell good news for India, as it would reduce the need for an imposition of tariffs on India.
“The stock markets can digest the current shock. India’s savings through Russian oil imports is larger than its bilateral trade with the US,” says Kranthi Bathini, director of equity strategy at WealthMills Securities. “We could see some bottom-fishing for stocks around levels of 24,700 for the Nifty 50 index,” he said.
Till then, there is much the government needs to do: Open emergency credit lines for exporters, push for diversification of exports to countries outside of the US and promote high level negotiations with Washington to ensure improved India-US relations.
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