US Tariff Shock: Which Sectors in India Would Be Hit Hard, Which Remain Safe for Now
Economic relations between India and the US have entered a turbulent phase following the Trump administration’s decision to impose a massive 50 per cent duty on a wide range of Indian goods. Effective from Wednesday, these measures are set to drastically alter trade flows between the two countries. For India, which has been heavily dependent on exports of low-margin, labour-intensive products to the US market, the move comes as a severe setback.
Apparel, textiles, gems, jewellery, shrimp, carpets and wooden furniture are among the most vulnerable sectors. For decades, these industries have been the backbone of India’s export strategy, generating employment for millions of low-skilled and semi-skilled workers. With the duties more than doubling in some cases, it may become increasingly unviable for Indian exporters to remain competitive in the US market.
The decision is another chapter in Donald Trump’s aggressive trade policy, which seeks to prioritise US manufacturing and reduce the trade deficit. However, the economic pain for India could be deep and widespread, impacting employment and supply chains as well.
Scale of the Impact: A Sharp Drop in Export Value
According to estimates by the Global Trade Research Initiative (GTRI), India’s merchandise exports to the US could drop from nearly $87 billion in FY25 to just $49.6 billion in FY26. This staggering decline reflects the extent to which higher tariffs will erode the competitiveness of Indian goods. Nearly two-thirds of India’s total exports to the United States are covered under the new 50 percent tariff regime.
Some product categories are set to face even more punishing tariff rates when combined with pre-existing duties. In a few cases, effective tariffs may surpass 60 percent, a level that virtually eliminates India’s cost advantage in the global marketplace. Such a sharp increase does not merely alter profit margins but has the potential to shut down entire export lines, especially for small and medium-sized enterprises.
Trade economists warn that this sudden decline could have a cascading effect on India’s overall export performance in FY26. Since the US is one of India’s largest trading partners, a slump in demand from this single market could dampen the momentum of India’s broader export ambitions.
Sectors Facing the Brunt of the Tariffs
The most immediate victims of the tariff hike are sectors that rely on thin margins and low labour costs. Indian textiles and apparel, for instance, have long thrived in the US market by offering affordable quality at scale. However, with tariffs pushing up final prices, American retailers may shift sourcing to countries like Vietnam and Bangladesh, which enjoy lower trade barriers.
The gems and jewellery industry, another pillar of India’s export economy, is also under heavy threat. India is the world’s largest diamond cutting and polishing hub, and the US has been its biggest customer. The imposition of steep tariffs could deter American buyers, prompting them to look toward competitors in Thailand, Hong Kong, or even domestically produced substitutes.
Shrimp exports, which generate significant foreign exchange for India’s coastal states, are similarly at risk. The US has consistently been the top destination for Indian shrimp, but a 50 percent tariff makes the product less competitive compared to exports from Ecuador or Indonesia. For thousands of small-scale farmers, such a decline could spell economic distress.
Carpets, handicrafts, and wooden furniture—industries that not only support rural artisans but also symbolize India’s cultural exports—may face shrinking orders as American importers re-evaluate their sourcing strategies. The cumulative impact across these industries could translate into job losses on a scale that India’s labour-intensive economy can ill afford.
Competitors Waiting to Gain
While India braces for losses, other exporting nations stand to benefit from the trade reshuffle. Vietnam, Bangladesh, and Cambodia, all of which have developed robust export infrastructure in apparel and textiles, could see their market share in the US surge. China, despite its own complex trade relations with Washington, may still gain in product categories where it remains dominant.
Even Pakistan, a direct competitor in textiles and handicrafts, could find itself better positioned to sell into the American market. With tariffs creating a level playing field tilted away from India, these countries have a unique opportunity to consolidate their presence.
For India, the concern is not only immediate revenue loss but also the long-term erosion of market share. Once American buyers establish new supply chains with competing countries, winning back those contracts may prove extremely difficult even if tariffs are relaxed in the future.
Which Sectors Remain Relatively Safe
Not every Indian industry will feel the sting of Trump’s tariffs equally. Sectors like pharmaceuticals, information technology services, and certain engineering goods remain relatively insulated. Indian pharmaceutical companies, which supply critical generic medicines to the US, continue to enjoy strong demand that is less price-sensitive compared to textiles or seafood.
Similarly, India’s IT services sector operates largely through onshore delivery centers and professional visas rather than merchandise exports, keeping it beyond the reach of the tariff regime. Engineering goods and specialty chemicals may also retain some resilience, depending on their degree of price elasticity and the absence of strong alternative suppliers.
Nevertheless, while these sectors may escape the immediate damage, they cannot entirely insulate the Indian economy from the broader export shock. Reduced foreign exchange inflows and weaker export growth can indirectly affect investment, employment, and domestic demand.
Political and Economic Repercussions in India
The imposition of steep tariffs by the United States is likely to create political ripples in New Delhi. With exports forming a crucial pillar of India’s growth strategy, policymakers will face pressure to negotiate with Washington to ease trade restrictions. Diplomatic channels may intensify efforts to carve out exemptions for critical sectors or to seek a phased implementation that allows Indian industries to adjust.
Economically, the fallout could be severe for states heavily dependent on export-driven jobs. Regions like Gujarat, Tamil Nadu, and Andhra Pradesh, where textiles, jewellery, and seafood industries dominate, could witness employment disruptions. The broader political challenge lies in mitigating the effects on millions of workers who depend on these industries for livelihoods.
Some analysts suggest that India may have to recalibrate its export strategy by diversifying into alternative markets in Europe, Africa, and Southeast Asia. Others argue for a stronger push toward domestic consumption as a buffer against external shocks. However, both solutions require time and structural changes that may not offer immediate relief.
The Uncertain Path for Trade Relations
The US tariffs on Indian goods represent more than just a commercial setback—they highlight the fragility of trade relations between two of the world’s largest democracies. Despite shared strategic interests in geopolitics and security, economic disputes remain a recurring source of friction.
If India fails to secure concessions, the loss of market share could reshape its export landscape for years to come. Conversely, if negotiations succeed in softening the blow, it may reinforce the importance of diplomacy in navigating economic conflicts.
For now, exporters and policymakers alike face a period of deep uncertainty. The coming months will determine whether India can adapt to this tariff shock or whether it will mark a turning point in its trade trajectory with the United States.
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