In todays talk, we deliver the information about the Trump's tarrif on India by the US. and what will be impact on the Indian Economy.
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The Talk
Imagine this. You are an entrepreneur in India, running a thriving pharmaceutical export business. Every month, you ship tons of life-saving medicines to the United States, where demand is high. Business is booming, profits are growing—until suddenly, a new policy hits. The U.S. imposes tariffs on Indian exports, and overnight, your products become more expensive for American buyers. Orders start dropping. Profits shrink. You’re left wondering—what just happened?
This isn’t just a hypothetical scenario. This is the real impact of the tariff policies introduced by the U.S., particularly under Trump’s leadership. While tariffs are often framed as economic tools, their ripple effects extend far beyond trade. They shape international relations, disrupt industries, and even influence stock markets. But why is the U.S. imposing these tariffs in the first place? And more importantly, how will they impact India?
One of the biggest drivers behind these tariffs is America’s $1 trillion trade deficit. The U.S. is importing far more than it exports, and it sees this imbalance as an economic threat. To fix this, it is targeting countries with large trade surpluses, meaning those that sell more to the U.S. than they buy. India ranks 10th on this list, with a $46 billion trade surplus. But the real giant here is China, sitting at a massive $295 billion trade surplus.
Of course, trade balance isn’t the only motivation. There are other, more unstated objectives at play. The U.S. government is under pressure to fund its spending without raising domestic taxes. So instead, it turns to foreign trade partners—imposing tariffs that generate revenue. At the same time, tariffs are being used as a tool to curb illegal migration and drug trafficking, especially on its borders with Mexico and Canada.
So, what does this mean for India? Which sectors will feel the burn?
The most vulnerable industry is pharmaceuticals—a sector where 31% of Indian exports go directly to the U.S. If American buyers find Indian medicines too expensive due to tariffs, they may start looking for alternatives elsewhere. Then there’s the electronics sector—out of the $8.7 billion worth of electronic goods that India exported in FY24, about one-third went to the U.S. Another key industry at risk? Nuclear reactors and equipment, which account for nearly $6 billion in trade.
But not all industries will suffer. While the U.S. has imposed a 25% tariff on steel and aluminum, India won’t feel the heat as much. The reason? The U.S. imports only 3% of its steel and aluminum from India, while Canada supplies a massive 42%. So, this particular tariff is more of a problem for North America than for Indian exporters.
There’s another silver lining—India’s booming service sector. In fact, for the first time, India’s service exports have surpassed its goods exports in absolute terms. This means that while tariffs may hit physical products, India’s growing dominance in areas like IT, consulting, and financial services could help offset these losses.
Now, let’s flip the script for a moment. How do these tariffs impact the U.S. itself?
While tariffs are meant to protect domestic industries, they also raise costs for American consumers and businesses. Inflation has already been on the rise, forcing the U.S. Federal Reserve to cut interest rates three times in response. Borrowing has become more expensive, and there are concerns that tight monetary policies could reduce investment demand for U.S. Treasury Bills.
For India, the real concern isn’t just the immediate impact—it’s what happens next. There is a looming threat of reciprocal tariffs that could be imposed as early as April 2, 2025. If that happens, we could see stock market volatility and shifts in trade policies. The key to mitigating this impact lies in expanding India’s reach in service exports and creating new trade avenues with the U.S.
Trade wars are never fought in isolation. They have consequences that extend beyond the numbers—affecting businesses, economies, and even global power dynamics. Will India find ways to navigate these challenges? Will these tariffs change the way we do business with the U.S.?
Only time will tell. But one thing is certain—we are entering a new era of global trade, and every move will shape the future.
With that, we thank you, and we will be closely watching these developments for you
Tags:
Trades & Tariffs