Trump’s tariffs and India: Short-term relief, long-term uncertainty

Aashima Sharma | April 11, 2025

Global trade tensions have intensified following US President Donald Trump’s announcement of steep reciprocal tariffs on over 50 countries, including a 26% duty on Indian exports. Although a surprise 90-day reprieve has temporarily softened the blow, the move has raised alarms across markets, with analysts warning of lasting impacts on trade flows, investor confidence, and supply chains. This analysis explores how India’s key export sectors are positioned to weather this uncertainty, the potential macroeconomic implications, and how strategic policy responses could help safeguard India’s hard-won export momentum amid rising global volatility.

India export_TPCi

In a move that sent ripples across global markets, US President Donald Trump on April 2 announced reciprocal tariffs ranging from 10% to 50% on imports from more than 50 countries. India, one of the countries affected, faces a 26% tariff under the revised structure. However, just a week later, in an unexpected reversal, Trump granted a 90-day reprieve to over 75 countries, including India, while softening the tariff to a flat 10% during this period. The initial shock followed by temporary relief has prompted intense scrutiny from global analysts, with many cautioning about potential disruptions to international trade and supply chains.

Crisil Ratings highlighted that while the immediate damage might be contained due to the 90-day pause, the magnitude of the announced tariffs is much higher than previously anticipated. If these are implemented after the reprieve ends, the agency warns they could dampen global economic growth, strain supply chains, and weigh on investor confidence. For India, which has seen robust export growth in recent years, particularly in select sectors, the development introduces a new layer of uncertainty.

Indian Exports: Sectoral Impact

Crisil assessed 11 key Indian export sectors to gauge their vulnerability to the tariff hike. Encouragingly, most sectors are expected to experience only a moderate to low impact. However, there are significant updates in the risk landscape. The diamond polishing industry, a traditional Indian stronghold, has been downgraded from ‘low’ to ‘moderate’ risk due to the added costs. Already contending with competition from lab-grown diamonds and weak global demand, the sector may struggle to fully pass on the increased cost to buyers. India’s dominance in diamond polishing, however, could cushion the impact, as the country is an indispensable player in the global diamond supply chain.

Interestingly, sectors such as smartphones and textiles are now considered to be at a lower risk than previously thought. The smartphone sector, previously seen as highly vulnerable, is expected to benefit from shifting sourcing strategies in the US. As tariffs on China and Vietnam – India’s major competitors – increase, India may emerge as a more viable alternative for American tech companies, thus offering an unexpected growth opportunity.

Similarly, the textile sector, a major employer in India, could see a relative price advantage as higher tariffs hit rivals like Bangladesh, Vietnam, and China. Crisil downgraded the risk for textiles from ‘moderate’ to ‘low’, highlighting India’s strengthening position amid realignments in global sourcing patterns.

Broader Economic Implications

Despite the sector-specific nuances, the broader economic picture presents some challenges. Merchandise exports to the US contributed around 2.0-2.5% of India’s GDP over the last three years, making the country somewhat insulated from direct damage. However, the indirect effects of a slowdown in global trade and GDP growth in developed markets could still affect India’s export-oriented industries.

The Crisil report emphasizes that while India’s export sectors face headwinds, many are well-positioned due to strong balance sheets and structural competitiveness. These attributes could act as a buffer in a turbulent trade environment, preserving credit profiles and sustaining investor confidence.

In the United States, the repercussions of tariff hikes are likely to be passed on to consumers through higher retail prices, potentially dampening consumer sentiment. Moreover, the uncertainty surrounding the tariffs could slow corporate investment, both domestically and globally, as businesses delay decisions until policy clarity emerges.

Policy Responses and the Road Ahead

As the situation evolves, the Indian government’s response through tariff diplomacy and safeguard duties will play a critical role. Strategic engagement with the US to secure sectoral exemptions or favorable bilateral terms could mitigate the damage. At the same time, India must guard against dumping risks by countries looking to divert their exports away from the US market, particularly in sensitive sectors like steel, chemicals, and electronics.

Crisil also pointed to the likelihood of retaliatory or adaptive measures by other nations. As trade partners recalibrate their policies in response to the US move, geopolitical realignments and new trade agreements could significantly alter the global economic landscape. These dynamics necessitate vigilant monitoring of tariff trends and potential shifts in trade flows that could influence credit quality and competitiveness in key Indian sectors.

Trump’s tariff announcement and its partial rollback within days underscore the volatile nature of current global trade policies. While India’s export sectors may not face immediate disruption thanks to the reprieve, the threat of longer-term turbulence remains. The ability of Indian exporters to adapt, coupled with strategic policy interventions, will determine how well the country navigates this uncertain terrain. With evolving global alliances and trade rules, maintaining competitiveness, resilience, and policy agility will be key to sustaining India’s export momentum in the face of mounting global challenges.