After Donald Trump announced punishing tariffs totalling over 50 per cent on Indian imports, big manufacturers in the world’s most populous country were deluged with anxious calls from investors and US clients.
Gokaldas Exports, a garment maker that generates half its revenues exporting from India to the US, where it supplies retailers including Walmart, Gap and Abercrombie & Fitch, said customers were asking if it could shift production elsewhere.
“It’s been insane — at 50 per cent tariff there is no business to be done,” said Sivaramakrishnan Ganapathi, the managing director of Gokaldas. “In the interim, brands are saying they’ll scale down their sourcing from India . . . they have options to go to Vietnam, Bangladesh, Sri Lanka.”
A broad section of Indian industry is in panic mode after the US president last Wednesday announced an additional 25 per cent rate on the country’s imports to be levied from August 27 on top of a 25 per cent duty imposed earlier this month.
Unless New Delhi can strike a deal with Washington, crucial sectors could be decimated, jeopardising Prime Minister Narendra Modi’s “Make in India” push to turn the country into a manufacturing supply chain alternative to China.
Trump, who has previously denounced India as a “tariff king”, blamed New Delhi’s purchases of Russian weapons and oil for the additional rate, which puts at risk India’s largest export market, worth $87bn in the year to the end of March.
Some big-ticket export categories such as pharmaceuticals and smartphones are exempt for now from the US tariffs and may face separate levies. But rating agency Moody’s has warned that if the 50 per cent rate sticks beyond 2025, the yawning tariff gap with the rest of Asia would “severely curtail” India’s manufacturing ambitions and even prompt some foreign direct investors to pull out of the country.
The 50 per cent rate would put US tariffs on Indian imports on a par with Brazil and much higher than China’s 30 per cent and Vietnam’s 20 per cent.
Pratik Patel, chair of Jash Engineering, an Indore-based manufacturer of water systems equipment that generates more than a third of revenues in the US, told analysts that the tariff uncertainty was its “biggest problem today”.
“This puts a lot of pressure on the orders which we have already taken from America. We are talking to our clients,” he said.
Economists at Nomura said the announced tariffs would be “akin to a trade embargo” that could devastate smaller businesses in thin-margin sectors, undermining India’s drive to integrate more deeply into global supply networks.
Ajay Srivastava, a trade policy expert with the Global Trade Research Initiative in New Delhi, said the worst-hit export sectors, including apparel, jewellery, carpets and shrimp, could see US sales fall 50-70 per cent.
The tariff “will essentially cut off most Indian exports to the US”, said Wendy Cutler, vice-president of the Asia Society Policy Institute and a former deputy US trade representative.
Some Indian companies were under strain even before Trump imposed the extra 25 per cent tariff last week.
“Tariff-related uncertainty is definitely something that nobody has ever experienced before,” Amit Kalyani, vice-chair of automotive components and armaments manufacturer Bharat Forge, told analysts just before the US president announced the additional rate.
Bharat Forge was “engaged with our customers in finding a resolution”, he said.
Sudhir Sekhri, chair of India’s Apparel Export Promotion Council, said the tariffs could cost the sector $5bn in lost sales over the next seven months, equivalent to about half of apparel and textile exports to the US in the 2023-24 financial year.
“The impact would be tremendous,” he said. “We believe that these tariffs are not sustainable, and they do not make any economic sense either.”
Modi has not commented on whether he might reduce or stop oil imports from Russia to appease Trump. But he has insisted that India would “never compromise on the interests of farmers, fishermen and dairy farmers”, signalling a tough stance on India’s highly protected agricultural markets, a sticking point in talks with Washington.
India’s economy, the fastest-growing among major nations, is less reliant on exports than many Asian peers, insulating it somewhat from US trade actions.
Despite high-profile “Make in India” investments from companies such as Apple, manufacturing’s share of GDP has remained stuck at about 14 per cent since Modi took power in 2014, well short of the 25 per cent target he set then for 2025.
That may partly explain why Indian markets have reacted relatively calmly to the new tariffs. One Mumbai banker said many investors saw them as “a negotiating tactic”. Another believed an agreement to avert them would be reached in the crucial final week of August.
The US tariffs presented “near-term headwinds” and companies would now need to explore new markets, said Shradha Suri Marwah, president of the Automotive Component Manufacturers Association of India, which represents an industry that sends 27 per cent of its exports to the US.
Richard Rossow, chair on India and emerging Asia economics at the Center for Strategic and International Studies in Washington, said Indian manufacturers “will attempt to diversify their export markets”.
“Even if we find a pathway through the current trade travails, such tantrums will probably be an ever-present part of US policy for the remaining three and a half years of the Trump administration — and perhaps beyond,” Rossow said.
But Ganapathi at Gokaldas said it would be difficult to swiftly pivot to new markets.
“If we try hard, we could do it in two years, but it’ll come at a cost of margin . . . new buyers would typically tend to ask for lower pricing, they will also sense desperation,” he said, adding he hoped India’s government realised shifting to a manufacturing-oriented economy required “good trade relationships”.
“The US is and will always remain a large market and if that gets excluded . . . then we do have a humongous problem,” Ganapathi said.