USA’s 50% Tariffs on Indian Exports and Its Implications

General Studies Paper-3

Context

• The United States has imposed 50% tariffs on a wide range of Indian merchandise exports starting August 27, 2025.

About

• The move combines the 25% tariff announced in July 2025 and an additional 25% “penalty tariff” in August 2025 linked to India’s purchases of Russian oil and defence imports.
• Key sectors affected include textiles, apparel, gems and jewellery, shrimp, carpets, leather, and furniture — all of which are labour-intensive and job-generating industries.
• Major Goods Exempted from Tariffs: Pharmaceuticals, Electronics and Petroleum products.

Impact on India’s Economy

• Trade Impact: India’s exports to the US could fall from $87 billion in FY25 to $49.6 billion in FY26, a decline of 43%.
  • The US accounts for 20 per cent of merchandise exports from India and 2 per cent of the GDP.
• Domestic Concerns and Industry Demands:
  • Gems & Jewellery Council (GJEPC): Demanding a duty drawback/ reimbursement scheme covering 25–50% of tariffs to protect competitiveness.
  • Textile Industry is seeking Immediate cash support, Loan moratoriums, Fast-tracking FTAs with the EU and other partners to diversify export markets.
  • Job Protection: Industries fear widespread layoffs in labour-intensive export hubs like Surat (diamonds), Tiruppur (textiles), and Andhra Pradesh (shrimp farming).
  • Competitors Benefiting: Countries such as Vietnam, Bangladesh, Cambodia, Pakistan, and China face lower tariff rates and are expected to capture India’s lost market share.

India initiatives to mitigate the impact

• E-Commerce Export Hubs (ECEHs): Proposed to provide integrated logistics, warehousing, and customs clearance facilities for online exporters.
• Consultations with Industry Stakeholders: Ongoing dialogue with MSMEs, global e-commerce giants, and retailers to balance regulatory reforms.
• Exploring Inventory-Based E-Commerce: Discussions underway to assess whether this model can reduce compliance burden for MSMEs.
• Tariff Negotiations: Efforts are being made to ensure India’s sensitive export sectors remain competitive despite global protectionism.

Way Ahead

• Short-Term Relief Measures:
  • Targeted subsidies, duty drawback, or reimbursement schemes for heavily hit sectors.
  • Temporary financial support packages to prevent job losses.
• Diversification of Export Markets:
  • Accelerate FTA negotiations with EU, UK, and Gulf nations.
  • Explore African and Latin American markets for textiles, gems, and marine products.
• Enhancing Competitiveness: Promote technology adoption, product innovation, and value addition in textiles and gems.