Donald Trump’s 26% tariff threatens India, how much will it lose, which sectors will be hit hard?

Donald Trump with Narendra Modi

Though US President Donald Trump called Prime Minister Narendra Modi his “dear friend” and announced a “discounted tariff” of 26%, it is most likely to hit the Indian economy hard. Not only will its exports to the US decrease, but India will also have to import more from that country. Besides, the overall reciprocal tariff regime may disrupt the supply chain and overall international trade scenario, making India a dumping ground. Indian currency may further fall, the current account may widen, and foreign exchange reserves may shrink. Unemployment may go up, and the stock market may be in the red zone for a more extended period. 

India-US bilateral trade

India-US bilateral trade totaled an estimated $129.2 billion in 2024. While Washington exported goods worth $41.8 billion, it imported India imports worth $87.4 billion. The US suffered a trade deficit of $45.60 billion during the period. 

Indian exports to the US include pharmaceuticals, telecom equipment, gemstones, petroleum products, gold jewelry, and ready-made cotton garments.

Electronics, gems and jewelry 

Washington imports nearly $14 billion worth of electronics and about $9 billion worth of gems and jewelry from India. This sector is most likely to be hit hard because till now Indian firms have paid 0.41% tariff on electronic products and 2.12% on gems and jewelry. Now, they will have to cough up a 26% tariff. 

If the exports in these sectors do not come down, India will have to pay as much as $6.76 billion. Earlier they paid $57.4 million on electronics and $190.8 million on gems and jewelry. India will pay $6.5118 billion more on these two items.

Aluminium, automotive 

There won’t be a significant difference in the total payable tariffs on auto parts and aluminium exports as a tariff of 25% has already been announced on these products. 

Pharmaceutical, Energy

India exports pharmaceutical products and energy equipment worth $9 billion. However, these sectors will not be impacted as Donald Trump has exempted them from the new tariff structure by an executive order signed earlier. 

Copper, semiconductor, precious metals

Besides copper, pharmaceuticals, semiconductors, and lumber, gold and silver have been exempted. 

Agriculture 

India may be hit hard in the agriculture sector. Tariffs on agricultural produce in India are among the highest in the world, ranging from 113.1% to 300%. Besides, the government provides farmers with subsidies, credit subsidies, debt waivers, crop insurance, and subsidies for inputs like fertiliser, fuel, electricity, and seeds. There are also non-barriers in place. 

The US has been pressing India hard to remove non-tariff barriers and slash the subsidies and other incentives. It has asked to cut the tariffs as well. If India agrees to accept even a small part of US demands, it may be flooded with wheat, maize, soybeans, poultry, dairy products, and fruits. It may hit farmers really hard.

Talks on BTA 

Talking about the impact of the reciprocal tariffs, US Treasury Secretary Scott Bessent said that if the tariffed countries “do not panic,” these tariffs would be the cap on how high tariffs can go. 

It can be interpreted that if countries react and retaliate, Washington can further increase the tariffs.

India has another advantage in that it will soon begin talks with the US Trade Representative on a Bilateral Trade Agreement (BTA) and can address the contentious issue of reciprocal tariffs and discuss it on a case-by-case basis, taking as many concessions as possible.