India’s economy could take a multibillion dollar hit after President Donald Trump raised tariffs on Indian goods to 50% — one of the highest levies on any trading partner — over objections to the South Asian country’s oil trade with Russia.
Trump had previously imposed tariffs of 25% on Indian goods due to the country’s high trade barriers.
While only around 20% of India’s goods exports — or 2% of GDP — are U.S.-bound, certain sectors are disproportionately exposed. UBS estimates $8 billion worth of exports are most vulnerable, including gems and jewellery, apparel, textiles, and chemicals.
The new tariffs are set to go into effect in 21 days, according to the order, while the previously announced tariffs are set to take effect on Thursday.
“There may be more symbolism than substance to the extra 25% tariff on imports from India,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The duty does not into effect for 21 days. That’s quite a wide window to provide an offramp.”
Economists had forecast that the previously announced import duties were likely to have a “marginal downside” hit to India’s economic growth, owing to its diversified trade around the world.
However, some sectors of India’s economy are more exposed to trade with the U.S. than others.
“In terms of sectors impacted, we think gems and jewellery, apparel, textiles, and other chemicals are more exposed to the US tariffs and could see some targeted support measures from the government,” said UBS economists Tanvee Gupta Jain in a note to clients on August 5.
Investors in Indian equities, however, will remain partially insulated from the impact of tariffs.
The Nifty 50, the Indian benchmark index, for instance, “has about 9% direct exposure to the US, most of which is concentrated in IT Services”, according to Societe Generale equity strategists led by Rajat Agarwal.
IT services, however, are not targeted under the current duties on goods.
“The impact of tariffs for equities has fed through mainly via a weaker INR and higher currency volatility, which has weighed on foreign flows in the near term,” Agarwal added in a note to clients on August 6, ahead of the White House’s latest announcement.
Similarly, analysts point to India’s vast export of pharmaceuticals to the U.S., which are also likely to be shielded from tariffs.
India also exported steel and aluminium to the United States, but trade in those goods is taxed through a separate executive order.
Similarly, semiconductors and derived electronic products are also exempted from the reciprocal tariffs. Apple, which has large-scale manufacturing operations in India, is expected to be largely unaffected by the tariffs.
