Trump’s India tariffs take effect: Which sector will be hit, what’s exempt?

United States President Donald Trump and India’s Prime Minister Narendra Modi [File: Al Drago/Reuters] (Reuters)

United States President Donald Trump’s 50 percent tariff on Indian goods, which is expected to impact trade worth billions of dollars and risk thousands of jobs in the world’s most populous nation, took effect on Wednesday.

The US first slapped a 25 percent tariff on India on July 30 and a week later imposed an additional 25 percent, citing New Delhi’s purchase of Russian oil.

The new 50 percent rate, one of the US’s highest tariffs, will now apply to a range of goods from gems and jewellery, garments, footwear and furniture to industrial chemicals.

The crushing tariff rate will put India at a disadvantage in export competitiveness against China, and will undermine the economic ambitions of Prime Minister Narendra Modi to transform the country into a major manufacturing hub. Until recently, the US was India’s largest trading partner with annual bilateral trade worth $212bn.

So which industries will be hit the hardest and how will it affect US-India relations?

Which sectors will be worst hit?

The Global Trade Research Initiative (GTRI), a New Delhi-based think tank, told The Financial Times newspaper that Indian exports to the US could fall from $86.5bn this year to about $50bn in 2026 as a result of today’s announcement.

The GTRI said that textiles, gems, jewellery, shrimp and carpets would be worst affected, with the sectors bracing for a 70 percent collapse in exports, “endangering hundreds of thousands of jobs”.

“There will be a huge impact,” MK Venu, founding editor of The Wire news site, told Al Jazeera.

“While India is not a big trading partner for the US, for India, the US is the largest trading partner,” he said, adding that exports would be affected in the areas of textiles, garments, gems and jewellery, fisheries, leather items and crafts.

These are “very, very labour-intensive” and small companies, which cannot survive the hit, Venu said about the sectors to be affected by the tariffs. “They will lose businesses to Vietnam, Bangladesh and Pakistan, and other East Asian economies.”

Will any industries be exempt?

The Indian pharmaceutical industry has been exempted from immediate tariff increases due to the significance of generic drugs in providing affordable healthcare in the US. Roughly half of the US’s generic medication imports come from India.

In 2024, Indian pharmaceutical exports to the United States amounted to approximately $8.7bn.

Meanwhile, semiconductors and consumer electronics will also be covered by separate, sector-specific US tariffs. Finally, aluminium and steel products, together with passenger vehicles, will also be subject to tariffs separate from the blanket 50 percent rate.

What is the Indian government doing to mitigate the impact?

Prime Minister Modi has pledged to protect farmers, cut taxes and push for self-reliance in the wake of tariff hikes.

India “should become self-reliant – not out of desperation, but out of pride … Economic selfishness is on the rise globally and we mustn’t sit and cry about our difficulties,” Modi said in his Independence Day speech at New Delhi’s Red Fort.

Faisal Ahmed, professor of geopolitics at Fore School of Management in New Delhi, says increasing the domestic productive capacity of India is not new. “It was a policy choice taken by Modi during the COVID-19 pandemic. Trump’s tariffs look set to accelerate that process,” Ahmed told Al Jazeera.

On top of the $12bn income tax giveaway announced earlier this year, the Indian prime minister also said that businesses could expect a “massive tax bonanza” soon. It’s also understood that Delhi is planning to lower and simplify the goods and services tax.

This, along with a boost to the salaries of nearly five million state employees and 6.8 million pensioners (which will kick in next year), could help India’s economy retain some growth momentum.

An Indian commerce ministry official told Reuters earlier this week that exporters hit by tariffs would receive financial assistance and other giveaways to diversify into markets like Latin America and the Middle East.

Venu, who is also a former editor of the Financial Express newspaper, says that assurances have come from the central bank and the prime minister, but there is no real policy.

“Who will fund the subsidy? Will it be taxpayers or some of the big companies that benefitted from the Russian oil exports? So, there is no clarity on the details of how the subsidies would be provided. Even if subsidies are provided, it won’t be enough to cushion such a huge hit,” Venu told Al Jazeera from New Delhi.

He said that the government did not prepare for what was coming. “India should have had a policy, it should have done its homework because we knew that Trump was not going to relent, he was going to punish India for buying Russian oil.”

Indian policymakers will now be forced to rethink the overreliance on the US market, the Indian media reported on Wednesday. New Delhi might also explore the possibility of joining multilateral trade pacts – a move it had resisted in the past. The country has also signed bilateral trade arrangements with dozens of countries, and efforts are on to conclude a trade deal with the European Union by the end of this year.

Ahmed from the Fore School of Management said that the tariffs “shouldn’t have a significant impact on India’s GDP… probably around 1 percent”.

Teresa John, lead economist at Nirmal Bank, echoed Ahmed: “We estimate a [negative] impact of about $36bn, or 0.9 percent of GDP,” she told Reuters.

Earlier this year, the International Monetary Fund forecast that India’s economy would grow by 6.4 percent in 2026. That could change.

What reason has Trump given for tariffs?

Talks to defuse a trade war broke down after five rounds of negotiations, following Trump’s calls for India to halt its imports of Russian oil and gas.

Despite the persistent threat of higher US tariffs, India has continued to buy Russian crude this year – albeit at falling levels.

New Delhi has also been hit because of the geopolitical rivalry between Russia and the West. Top Trump officials, including US Treasury Secretary Scott Bessent, have accused India of funding Russia’s war against Ukraine. He pointed out that India’s Russian oil imports went from 1 percent before the Ukraine war to 37 percent. He accused India of “profiteering”.

India’s foreign ministry said that New Delhi would “take all necessary steps to protect its national interests” and pointed out that Russian oil imports were driven by market forces and the energy needs of the country’s 1.4 billion people.

New Delhi has also accused Washington of selectively targeting India for purchasing Russian oil, when both the European Union and China – with whom Trump has brokered trade deals – continue to import energy from Russia.

Trump, who has unleashed a tariff war that has shaken the global economy, has been highlighting the high tariffs imposed by India.

“India has been, to us, just about the highest-tariffed nation anywhere in the world. It’s very hard to sell to India because they have trade barriers and very strong tariffs,” Trump said during Prime Minister Modi’s visit to the US in February.

New Delhi pledged to remove levies on certain industrial goods from the US and to increase defence and fuel purchases – to assuage Trump’s grievances over trade imbalances. But it refused to open its vast farming and dairy sector to cheap US imports.

“Modi will stand like a wall against any policy that threatens their interests. India will never compromise when it comes to protecting the interests of our farmers,” the Indian prime minister said on August 15.

For context, the simple average tariff rate that India imposed on agricultural imports was 39 percent at the end of 2024. By contrast, the simple average tariff rate that the US charged on its agricultural imports was 4 percent. Trump took umbrage with that.

Last year, bilateral trade between India and the US stood at approximately $212bn, with a trade gap of about $46bn in India’s favour.

Trump’s tough stance has pushed India to mend ties with rival China – the world’s second-largest economy and one of New Delhi’s biggest trading partners with a bilateral trade of around $136bn. India is also preparing to roll out the red carpet to Russian President Vladimir Putin as New Delhi moves to strengthen its traditional ties with Moscow.

Source : https://www.aljazeera.com/economy/2025/8/27/trumps-india-tariffs-take-effect-which-sector-will-be-hit-whats-exempt