New Delhi: The United States under President Donald Trump has officially imposed an additional 25% tariff on Indian goods, effective August 27, 2025, bringing the total US levy on India to 50%—among the highest faced by major trading partners. The decision, announced by the US Department of Homeland Security, targets Indian goods “entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 am EDT on August 27.”

The tariffs, implemented under Executive Order 14329, are linked to India’s continued imports of Russian crude and defence hardware. Analysts warn that this move is more than a trade dispute—it is a direct blow to India’s largest export market, affecting jobs, growth, and entire industries dependent on American demand.

Sectoral impact: MSMEs and labour-intensive industries hit hardest

Analysts caution that the burden of fresh tariffs will fall disproportionately on India’s micro, small, and medium enterprises (MSMEs), which account for almost 45% of total exports. According to CRISIL, an estimated $19 billion worth of exports across textiles, chemicals, seafood, auto components, leather, and jewellery are directly at risk.

• Textiles & Apparel: With exports of $10.3 billion to the US, India’s textile sector faces the harshest blow. Total tariffs on shipments such as readymade garments now reach nearly 64%, pricing Indian exporters out of the American market. The Tirupur cluster, which alone accounts for 30% of apparel exports, faces existential challenges. Competitors like Bangladesh and Vietnam, facing only 31% tariff rates, stand to gain market share.

• Gems & Jewellery: Valued at $10 billion annually, jewellery and diamond exports are particularly exposed, with 52% duties now applicable. Surat, where over 80% of India’s diamonds are polished, and Mumbai, a jewellery hub, face severe disruption. Industry leaders warn that 150,000–200,000 jobs are at risk, with exporters already reporting slumping orders.

• Seafood: India’s $7.4-billion seafood export industry—dominated by shrimp—faces tariffs as high as 60%, threatening livelihoods in Andhra Pradesh and Visakhapatnam. The US is India’s largest shrimp buyer, but Ecuador, with just a 15% levy, is poised to dominate the market.

• Chemicals & Auto Components: Both sectors face mounting pressures. Auto parts worth $3.4 billion face 25% duties, with components like gearboxes and transmission parts seeing up to 40% exposure. In chemicals, SMEs controlling nearly 40% of the market are under stress from cheaper Japanese and South Korean competitors.

• Leather & Footwear: Exports worth $870 million to the US are now uncompetitive, with footwear prices rising nearly 50% after duties. Industry bodies warn that Kolkata’s manufacturing units may halt production amid rising costs and evaporating international demand.

Sectors such as pharmaceuticals (12% of exports to the US) remain untouched for now, offering partial relief. Similarly, steel exports face minimal impact as Indian MSMEs in this industry largely serve domestic markets.

Source: CRISIL INTELLIGENCE

The economic shock: Growth and jobs at risk

The scale of impact on India’s economy is profound. According to the Global Trade Research Initiative (GTRI), India exports goods worth $86.5 billion annually to the US, of which $60.2 billion—or two-thirds—now falls under the 50% tariff bracket.

GTRI projects that affected exports could plunge by 70%, slashing shipments from $60.2 billion to just $18.6 billion, potentially cutting overall exports to the US by 43%.

Nomura estimates that the US market constitutes roughly 2.2% of India’s GDP, and early modelling by banks suggests that GDP growth could fall below 6% in FY26. Economists from HDFC Bank and ICICI Securities caution that GDP could take a 0.4–1% hit, with ripple effects across corporate earnings, private investment, and labour markets.

Unemployment remains a critical concern. Apparel, jewellery, and seafood hubs in Tamil Nadu, Gujarat, Maharashtra, and Andhra Pradesh could suffer mass layoffs. Analysts warn that millions of jobs may be imperilled, with urban unemployment already standing at 7.1% as of June.

Economic and market fallout

Economists warn of a macroeconomic impact, with IDFC First Bank projecting a 0.4% reduction in FY26 GDP growth, while HDFC Bank anticipates growth may dip below 6%. The tariffs could destabilise employment in key export hubs and intensify pressure on already thin corporate margins.

Markets reacted sharply, with the Sensex falling 849 points and the Nifty dropping 256 points after the announcement. Investor wealth in BSE-listed companies declined by ₹6.02 lakh crore, reflecting market apprehension.

India’s response

Prime Minister Narendra Modi, speaking in Ahmedabad, described the move as an era of “economic selfishness” led by the US. He assured that India would endure the pressure, pledging GST reforms by Diwali and announcing fresh measures to lower domestic costs. A two-day government council in September will evaluate ways to cushion exporters, including tax relief and faster refunds.

External Affairs Minister S. Jaishankar framed the issue as part of a broader pushback against unilateral global policies, noting that India is “ready to withstand pressure without compromising sovereignty.”

Still, exporters remain anxious. Industry bodies are demanding interest subsidies, credit relief, and SEZ reforms to counter immediate shocks. Some firms are already exploring partial production shifts abroad or routing goods through alternative export partners.

Global trade shift: Who gains from India’s loss?

Trade experts caution that once lost, markets may be difficult to recapture. Competitors such as Bangladesh, Vietnam, Cambodia, Mexico, Turkey, and smaller suppliers like Nepal and Kenya could consolidate their foothold in the US market at India’s expense.

Ajay Srivastava of GTRI warns: “Once buyers shift to rival suppliers, switching back to Indian exporters is not automatic. This could mark a structural decline in India’s participation in global value chains.”

Source: GTRI Analysis

Outlook

Industry officials are exploring strategies like rerouting goods through third countries, setting up overseas plants, and pivoting to alternative markets. However, the immediate impact is severe, particularly for MSMEs and labour-intensive sectors. Diplomacy and bilateral trade negotiations may offer relief, but India is bracing for one of its toughest trade shocks in decades.