India, 18 April 2025: A sweeping 26% US import tariff is sending shockwaves through global trade—and India could be one of the biggest collateral casualties. But is this crisis also an opening for opportunity?
Despite the Modi government’s swift and strategic move to cut tariffs on over 50% of US imports in a fresh trade deal worth $23 billion, the real test lies ahead: navigating both the perils and possibilities of this tariff tsunami.
The Immediate Jolt: Exports Under Pressure
At the most direct level, the steep US tariffs will dent India’s export competitiveness, especially for sectors where products are easily replaceable. As Anirban Sanyal, an RBI employee, put it:
“The proposed 26 per cent tariffs, therefore, are going to hurt India’s export intensity to the US. But to what extent? That depends upon the tariff elasticity. As per IMF estimate, the tariff elasticity of India’s exports is around 0.9.”
In plain terms, that means if tariffs go up by 10%, India’s exports to the US could drop by about 9%—a near one-to-one hit.
Sectors like processed foods, textiles, and low-end consumer durables are particularly vulnerable. “These products… can be easily substituted with products from other countries,” Sanyal noted. So the hit won’t just be theoretical; it’s likely to affect thousands of small and medium-sized exporters across the country.
A Silver Lining? Trade Diversion Opportunities
But the story doesn’t end in gloom. There’s also a window of opportunity—and India may be uniquely positioned to seize it.
“With several other Asian exporters facing the same levies, India may emerge as a viable alternative for US buyers—particularly in pharmaceuticals and light manufacturing,” Sanyal emphasized.
The last US-China trade war offered a preview: Indian exporters saw modest gains in sectors like chemicals, machinery parts, and electronics. This time, the gains could be broader and deeper. Countries like China, Vietnam, and Bangladesh—also targeted by US tariffs—are losing their price edge, making India a more attractive alternative for US firms scrambling to diversify sourcing.
Economic reforms must also be part of the equation, say experts.
“Middle-class Indians are struggling. Residential building sales, passenger vehicles and two-wheelers (sales) have declined… It is important domestic policies focus on the root cause,” said Kunal Kundu, India economist at Societe Generale, in an interview with Business Standard.
He emphasized the urgent need for a structural economic shift:
“India needs a 1991 moment,” Kundu said, referencing the landmark liberalization reforms introduced by then finance minister Manmohan Singh.
“We believe the tariff war offers a perfect opportunity for India to embark on this much-needed journey. Otherwise, despite being the fastest-growing large economy in the current low global growth environment, India is likely to fall significantly short of its long-term objective of becoming a developed nation.”
The Hidden Threat: Import Dumping on Indian Shores
Yet even as India eyes potential trade diversion gains, there’s a lurking threat from the east.
“India may face the burden of cheap import dumping from its neighbors,” Sanyal warned. Displaced by the US market, exporters from countries like Vietnam, Cambodia, and China may offload their goods in India, flooding domestic markets with low-cost products.
This surge in cheap imports could be devastating for India’s micro, small and medium enterprises (MSMEs), many of which are still recovering from the aftershocks of COVID-19 and global inflation. Industries such as electronics, footwear, and garments are particularly at risk.
A Bigger Picture: Macroeconomic Ripples
Beyond trade, the impact of US tariffs is set to reverberate through broader economic channels.
“The global growth slowdown will accelerate as trade policy uncertainty elevates,” Sanyal wrote. The WTO expects global trade to decline by at least 1%, and that’s just the beginning. Commodity prices, from crude oil to metals, are already showing signs of softening amid weaker demand forecasts.
“There’s also an early sign of US dollar weakening,” Sanyal added, pointing to a potential appreciation in the Indian rupee—which, while helping tame inflation, could further hurt export competitiveness.
India at a Crossroads: Strategic Response Needed
As the world reconfigures its supply chains, India has a rare opportunity to reposition itself. The government’s recent tariff cut on US imports is a step in the right direction—aimed at securing better access for Indian goods in a friendlier trade environment.
But more must follow. To withstand import dumping, India needs tighter safeguards and more agile trade enforcement. And to truly capitalize on trade diversion, it must ease regulatory barriers, enhance infrastructure, and push ahead with long-delayed export incentives.
In Sanyal’s words:
“The impact of the tariffs may have a larger impact through global growth slowdown and subsequent reactions in commodity prices. The trade impacts will be felt… but the impact will be of lesser magnitude.”
Tariffs may rewrite trade maps—but it’s India’s response that will define its future.
