How to counter Trump’s tariffs? Is it possible to offset the impact of a massive 50% US tariff on Indian goods?
Economists and experts have been grappling with these questions ever since US President Donald Trump imposed higher tariffs on Indian goods over New Delhi’s purchase of Russian oil.
The 50 per cent tariff went into effect on August 27, affecting sectors such as textiles, gems and jewellery, certain mechanical appliances, agriculture, and processed food.
Despite high expectations that the 25 per cent secondary tariff will go down soon, there are no signs that things are moving in the right direction. A Bloomberg report quoted Trump saying on Tuesday that he’s not looking at lowering tariffs on India.
Meanwhile, Commerce and Industry Minister Piyush Goyal on Tuesday indicated that trade talks are continuing and India is hopeful of concluding its proposed bilateral trade agreement (BTA) with the US by November this year.
Trump tariffs can’t be overlooked
Experts are assessing Trump’s 50 per cent tariffs on India from different perspectives.
Some believe the tariffs are merely a pressure tactic by the US President and are likely to be rolled back, given that India is a key strategic partner of the US.
Moreover, there are growing voices within the US itself opposing higher tariffs on India for purchasing Russian oil, while China—the largest importer of Russian oil—faces only a 30 per cent US tariff.
On the other hand, some analysts see the possibility of US tariffs on India remaining for a longer period, impacting the nation’s GDP growth by up to a percentage point.
But the impact on growth is not the biggest challenge. The major concern is job losses in the affected sectors.
For example, textiles, gems and jewellery, seafood, mechanical appliances, metals, handicrafts, carpets, leather, and footwear are labour-intensive industries that employ millions. Since the US is India’s largest export partner—accounting for 18 per cent of total exports, or about 2.3 per cent of India’s GDP—assessing the impact of US tariffs on India does not require much effort.
Internal reforms hold the key
The Indian government is exploring all possible ways to mitigate the tariff pain. It is engaged in heightened diplomatic activities to secure trade deals and new export avenues for Indian goods.
India has signed free trade agreements with Australia, the UAE, Mauritius, the UK, and the European Free Trade Association (EFTA) bloc.
Prime Minister Narendra Modi attended the Shanghai Cooperation Organisation (SCO) summit in Tianjin, China, marking his first visit to China in seven years.
While strategic ties will certainly help, it is the internal reforms that hold the key, say experts.
“While stronger strategic and trade ties with China and other partners will provide some cushion, India’s foremost priority must be internal reforms to withstand the shock of Trump’s tariffs,” said Manoranjan Sharma, Chief Economist at Infomeric Valuation and Ratings.
Sharma said expanding engagement through FTAs with the EU, UK, and EFTA, exploring membership under CPTPP, and boosting trade with Africa, ASEAN, the Middle East, and Brazil can certainly help diversify risk. Yet, the real game-changer lies in domestic policy reforms that strengthen economic fundamentals.
For instance, proposed GST reforms alone could significantly raise household disposable income, potentially lifting consumption by ₹1.98 lakh crore and thereby deepening the internal market.
“A more vibrant domestic economy, less dependent on US exports, would reduce vulnerability to external shocks and bolster resilience. Complementary measures must include proactive trade diversification, targeted export promotion, supply-side strengthening in electronics and high-value sectors, smarter negotiations, and diplomatic leverage. Achieving this balance is challenging, but well within India’s reach,” said Sharma.
Indranil Pan, chief economist of YES BANK, underscored that Trump’s 50 per cent tariffs will negatively impact GDP by 0.4-0.7 per cent on a full-year basis. Domestic consumption forms around 60 per cent of the GDP, and policy efforts will need to boost private consumption demand. A few steps have already been taken in this direction.
“We are waiting for the GST simplification, which will push most goods from a higher tax bracket to the lower tax bracket, thereby providing a boost to private consumption. Income tax reduction in the Budget, along with RBI’s monetary policy easing by 100 bps, is also seen to be pushing up urban consumption demand,” said Pan.
However, Pan emphasised that the government would need to examine job creation strategies to absorb the labour displaced from the export-oriented sectors, which might also include strategies to strengthen skill redevelopment.
Agriculture is another area that the government should focus on to improve productivity, as this sector can absorb a significant amount of labour.
“Special schemes with credit guarantee embedded need to be rolled out for the MSMEs to enable them to re-engineer their production lines so as to cater to the demand needs of domestic consumers, rather than of the global consumers,” said YES BANK’s chief economist.
Debopam Chaudhuri, chief economist of Piramal Group, highlighted that India’s growth rests on two pillars— the consumption power of its youth and deeper integration into global supply chains.
While progress has been made on the latter, the bigger challenge for the former is generating quality jobs at scale.
“Each year, over five million young Indians enter the workforce without finding meaningful employment—a gap that threatens the very consumption-led growth story of our demographic dividend,” Chaudhuri said.
“The real catalyst for job creation is private capex, and the entire governance system—from New Delhi to states to local bodies—must focus on clearing business hurdles and channelling investments into productive sectors,” said Chaudhuri.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
