Trump tariffs could hit 70% of India’s goods exports: Here's what ICRIER recommended to mitigate the impact

Around 70 per cent of India's goods exports to the US, valued at $60.85 billion, are now exposed to the 50 per cent tariff imposed by the US administration, according to an analysis by ICRIER, a economic policy think tank. 

This is a significant concern for key Indian sectors, although it represents just 1.56 per cent of GDP and 7.38 per cent of total exports, which is far from a catastrophe for India’s $3.9 trillion economy.

The report by the Indian Council for Research on International Economic Relations, titled 'Navigating Trump's Tariff Blow' outlines the specific challenges posed by these tariffs on several Indian sectors, along with recommending ways to deal with them, ANI said.

The scope of tariffs

The US administration, led by President Donald Trump, initially imposed a 25 per cent tariff on Indian goods. This was later increased by another 25 per cent to a total of 50 per cent, a decision reportedly linked with India's continued imports of Russian oil.

In contrast to India, competitors such as Vietnam (20 per cent), Bangladesh (18 per cent), Indonesia, Malaysia, and the Philippines (19 per cent), and Japan and South Korea (15 per cent) enjoy lower rates, as per an ANI news report.

Sectors to be affected by the heavy tariff

The impact of the US tariff is heavily concentrated in labor-intensive and high-value sectors, which not only anchor the merchandise exports to the US but also directly affect employment generation and the livelihoods of millions of workers and farmers. These sectors include:

• Textiles and apparel: This sector now faces a tariff disadvantage of over 30 percentage points compared to rivals like Bangladesh, Pakistan and Vietnam, threatening its competitive position in a key export market.
• Gems and jewelry: With exports to the US worth $11.9 billion, this sector faces similar challenges against suppliers such as Turkey, Vietnam, and Thailand.
• Auto parts: Constituting 3 per cent of India's exports to the US, this sector is also vulnerable.
• Agricultural products: Shrimp exports will be worst hit as 50 per cent tariffs come on top of existing anti-dumping and countervailing duties that India faces, making them uncompetitive with exports from Ecuador, Indonesia, and Vietnam.

"These are sectors where buyers can switch sourcing relatively quickly, which gives US importers bargaining power and weakens India's negotiating position," the report said.

However, it’s important to note that the new US tariff regime excludes pharmaceuticals, energy products, critical minerals, and semiconductors.

ICRIER’s recommended strategy

To mitigate the negative effects of the tariffs, the ICRIER report proposes a three-pronged strategic response for India:

• Smart negotiations: Engage in logical and rational negotiations with the US to find a mutually agreed resolution.
• Targeted relief: Provide immediate and targeted relief support to the hard hit sectors to help them deal with the tariff related losses.
• Trade diversification: On high priority, it’s crucial to diversify export markets to reduce dependency on the US and build long-term resilience.

Background of the Tariff situation

President Donald Trump has imposed ‘reciprocal tariffs’ on dozens of countries with which the US has a trade deficit. Since assuming office for his second term, Trump has reiterated his stance on tariff reciprocity, emphasizing that his administration will match tariffs imposed by other countries, including India, to "ensure fair trade".

Post that, India and the US initiated talks for a just, balanced, and mutually beneficial Bilateral Trade Agreement (BTA) in March this year, with an objective to complete the first stage of the Agreement by October-November 2025.

Faced with tariffs, during the ongoing Monsoon session of Parliament, Commerce and Industry Minister Piyush Goyal said in a statement that the government is examining the impact of tariffs and will take all necessary steps to safeguard the nation’s interest, the ANI news report said.

On India's import of crude oil from Russia, the Ministry of External Affairs (MEA) made its position clear, stating that India's imports are meant to ensure the disbursal of affordable energy to the Indian consumer. MEA also said that the targeting of India is "unjustified and unreasonable".