US Tariffs to Hit Indian Exports Hard
The 25% import tariff on India, declared by erstwhile US President Donald Trump and effective from August 1, may hit India’s economy hard. Based on a study conducted by the State Bank of India (SBI), even a tariff of 20% may reduce India’s GDP by as much as 0.5%. If the 25% tariff is implemented, the financial blow may be even bigger, particularly for those sectors that are export-oriented.
SBI’s study indicates that a 1% tariff increase can potentially cause a 0.5% decline in export volumes, highlighting the widespread nature of such trade restrictions.
Trump Defends Tariff Over Russian Connection
Defending the move, Trump accused India of imposing some of the world’s highest tariffs and maintaining “obnoxious” non-monetary trade barriers. He also pointed to India’s continued purchase of Russian oil and weapons, calling it unacceptable amid the ongoing war in Ukraine.
“They have always bought a vast majority of their military equipment from Russia,” Trump said. “This is not good when we’re trying to stop the killing in Ukraine.”
Effect on Pharma and Other Industries Not Clear
While specific information regarding what goods will be impacted is not known, Elara Capital Economist Garima Kapoor commented that listing pharmaceuticals among the tariffs would be especially detrimental. The US absorbs over 30% of India’s pharma exports.
“If no agreement is reached through September or October, we estimate India’s full-year GDP growth to decline by 20 basis points,” Kapoor cautioned.
Policy Experts Warn of ‘Blackmail’ Tactics
Former WTO envoy Jayant Dasgupta cited earlier legislative actions in the US intended to penalize nations importing Russian oil, indicating Trump’s administration might do more.
“We can expect strong action,” he said. “But India is not totally reliant on Russian oil there are alternatives.”
Former Finance Secretary S.C. Garg roundly condemned Trump’s tariff position, describing it as “blackmail, not business.
“This type of tariff regime is fatal for exports. We simply cannot go on trading with the US under these circumstances,” he further stated.
Industry, Diplomatic Fears Mount
Ajay Sahai, Director General, Federation of Indian Export Organisations, also voiced skepticism over the impact of the tariff.
“If it is 25%, we’ll need to assess whether exporters or buyers can absorb the additional cost,” he said. Still, he hoped the tariffs might only be temporary until a Bilateral Trade Agreement (BTA) is worked out.
Raymond Vickery of the Center for Strategic and International Studies noted that the action had the potential to harm US–India strategic relations. Nevertheless, he thinks negotiations can still occur, citing a US trade delegation due in India later in August.
