India’s economic growth faces tremendous challenges. Former President Donald Trump has recently few dramatic increase on tariffs on America goods to 50%. This new measure particularly drags down India’s powerful export engine. The country is also notably dependent on the United States, its chief export partner. In the fiscal year that ended in March, almost one-fifth of all India’s merchandise exports were sent to the U.S. That was about $87 billion total. The impacts of these increased tariffs could very well alter the backdrop of India’s place in global trade going forward.
The United States has historically been India’s most important export market. The U.S. is India’s number one partner in goods exports. It absorbs a lot of Indian manufactured goods such as textiles, pharmaceuticals, machinery and electronics. This relatively small trade account has had an outsized impact on India’s overall economic growth and created millions of jobs beyond trade itself. The recently implemented tariff increase is a significant threat to this important economic relationship.
In the fiscal year that ended in March, India’s exports to the U.S. jumped to almost $87 billion. This milestone underscores the significant importance of U.S. trade to India’s overall merchandise export basket. India also sends 20% of its goods to American markets—more than any other country. This bustling trade corridor has made both economies much more resilient. Elevated tariffs present a very real threat to this important trade. These losses may have cascading impacts on overall export growth and India’s economic stability.
Trump’s decision to further increase tariffs poses a short-term obstacle for Indian exporters. In addition, tariffs are dramatically increasing their costs. In the end, American consumers will pay the price, as higher prices for Indian products could reduce American demand for Indian products. In fact, exporters are already sounding alarm bells on the impact these tariffs will have on their ability to compete in the U.S. market.
Thousands of businesses in India are highly reliant on the U.S. market for their survival. Sectors such as textiles are integral to India’s export-driven economy. If American consumers vote with their wallets against the higher-priced products made possible by tariffs, these industries may face the most destructive retribution. This is true for sectors such as pharmaceuticals and machinery, where exports have dramatically increased. These tariffs might instead promise to erode their competitive and hard-earned market share.
Beyond the dollars and cents of Trump’s tariff policy, there’s a larger story. It has deeper consequences for U.S.–India diplomatic relations. This kind of trade tension can poison the well of other cooperative avenues, undermining strategic partnerships that have been cultivated over many decades. The economic interdependence created through trade has been a foundation for strengthening bilateral ties, and any disruption could hinder ongoing collaborative efforts.
In light of these changes, Indian policymakers should consider how to best avoid being on the receiving end of these disruptions. Finding new markets to sell to might be the best way to make a positive impact on dependence on just one trading partner. By expanding into other regions such as Europe or Southeast Asia, India could cushion the blow dealt by rising tariffs in the U.S.
To surmount increasing global competition, Indian exporters will have to get creative and step up with stronger product portfolios. That’s critically important to remain competitive even with elevated tariffs. Simply investing in technology isn’t enough. By bringing sustainable practices into your operations, you have the opportunity to appeal to consumers who prioritize sustainability, here in the U.S. and worldwide.
India is trying to thread the needle through a very challenging domestic and foreign policy landscape. Government officials and industry leaders at all levels need to have these discussions to find flexible solutions. Engaging in collaborative dialogue with U.S. counterparts will be helpful in taking steps to mitigate tariff-related damages while finding ways to maintain trade where possible.