Opinion Trump tariffs: The natural temptation is to retaliate, but here’s what India should do
India must lean on its large domestic market to absorb part of the export surplus. Diversification of export markets must accelerate. India must also leverage multilateral platforms
Trump administration said the change was needed to better monitor visa holders. 
It is not everyday that a nation’s single largest trading partner decides, with the stroke of a pen, to make its exports prohibitively expensive. Yet US President Donald Trump’s sudden imposition of a 50 per cent tariff on nearly two-thirds of Indian exports, effective August 27, 2025, has sent shockwaves through one of the world’s fastest-growing trade partnerships. Washington’s rationale was dramatic but disjointed: India’s purchase of discounted Russian oil, it claimed, was bankrolling Putin’s war. Yet the math fails — India saves barely $3–4 billion a year on crude but now risks losing almost ten times that in decreased export revenue from the US.
One of the most significant economic relationships of the past decade is being unsettled: In 2024, India exported $87 billion worth of goods to the United States, and more than half of this trade now falls under prohibitive duties. The tariff shock has produced consequences far removed from its stated purpose. American consumers will now pay more for Indian garments, jewellery, and seafood, while small exporters in India — already struggling with thin margins due to global supply chain disruptions — face cancelled orders, idle factories, and job losses. And through it all, Russia, the supposed target, continues to sell its oil to China, India and other Asian and African markets with little disruption.
The impact is especially harsh in India’s export clusters. Tiruppur’s knitwear industry in Tamil Nadu, which accounts for nearly a third of the country’s apparel exports, is seeing some orders diverted to Bangladesh and Vietnam, where duties remain far lower. Yet the current strain in Bangladesh’s ready-made garment sector means it may not be able to absorb the full surge in global demand, creating an opening for Indian textile exports to step in and mitigate the shortfall. In Surat, Gujarat, where most of the world’s diamonds are polished, the sudden jump from a 2 to 50 per cent duty has made Indian stones unaffordable to American buyers, threatening the livelihoods of thousands of workers. Along the coast, shrimp farmers are watching their produce pile up in cold storage, as tariffs now push the effective duty to 60 per cent, allowing Indian prawns to be undercut by Ecuadorian rivals paying just 15 per cent. Even in sectors such as chemicals, auto parts, and leather goods, exporters often find themselves priced out of their largest market.
Pharmaceuticals remain an exception, and that in itself exposes the hypocrisy of the move. As a price-inelastic, necessary good for American consumers, pharmaceuticals (accounting for about 12 per cent of India’s exports to the US) were exempted from any new duty because steep tariffs would have directly raised drug costs and triggered a domestic backlash; other chemical products haven’t been spared. The message is unmistakable: Tariffs have not been deployed to address trade imbalances, but rather as a political weapon, shielding what Washington cannot afford to lose at home, while leaving India’s export workers and American consumers of everyday goods to absorb the collateral damage.
The natural temptation for India would be retaliation; yet, any escalation can spiral out of control, and so a more pragmatic response will be through its domestic resilience. First, India must lean on its large domestic market to absorb part of the export surplus. Authorities are already considering cuts in the Goods and Services Tax on consumer goods to stimulate spending ahead of the festive season. Lower prices for clothing, appliances, and automobiles could encourage households to buy what American retailers are unwilling to. While the home market cannot fully substitute American demand, it can cushion the shock and keep factories running
Second, diversification of export markets must accelerate. Trade missions are being dispatched to Africa, the Gulf, and Southeast Asia to scout new buyers. Talks with the European Union on a long-pending free trade agreement have gained urgency, and deals with the UK, Canada, and Australia are being revived. Some industries are also considering “India+1” strategies — investing in hubs such as the UAE or Mexico, which enjoy lower-tariff access to the US, and routing part of production through them. East Asia’s fast-growing economies, particularly those of Vietnam and Indonesia, are natural target markets for chemicals and machinery.
Third, India must leverage multilateral platforms. The BRICS bloc — recently expanded to include new emerging powers — provides a venue for coordinating South-South trade and experimenting with local-currency settlements. With tariff attacks now also targeting other BRICS members such as China, Brazil, and South Africa, the grouping is finding renewed cohesion in pushing back against protectionism. India should seize this opportunity to strengthen its collective bargaining power within BRICS and channel it into securing alternative markets and more resilient trade frameworks. In fact, regional neighbours under the BIMSTEC framework also offer opportunities for Indian textiles and processed foods.
Furthermore, macroeconomic management will be crucial. In the worst-case scenario — if exports to the US fall by an estimated 43 per cent — India’s GDP growth could slip nominally. Yet, the current account deficit is expected to widen, and the rupee may face pressure. Despite this, India is better placed than many: Its growth is driven more by domestic consumption than exports, and booming services earnings from IT and business process outsourcing continue to bring in record revenues. With prudent policy support, India can prevent a temporary trade shock from metastasising into a balance-of-payments crisis.
India is unlikely to yield — strategic autonomy has long been a mantra in New Delhi — and despite the short- to medium-term losses, it views the confrontation not only as a defence of economic sovereignty but also as an opportunity to build greater domestic resilience. The costs will still be felt in livelihoods, communities, and the trust that underpins international commerce, yet India is prepared to weather them in pursuit of long-term stability and self-reliance.
Beneath the sectoral damages lies a deeper malaise: This episode reveals how fragile global economic governance has become. At a time when cross-border supply chains underpin everything from smartphones to vaccines, the ease with which unilateral tariffs can be slapped on a strategic partner erodes faith in a rules-based order. For emerging economies, the warning is clear: Development gains can be derailed overnight by decisions taken elsewhere, regardless of competitiveness or compliance. Ultimately, stability in trade, governance, and expectations sustains growth, and weaponising tariffs for political ends corrodes that stability while undermining the very system on which world economies depend.
The writer is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at Observer Research Foundation (ORF)
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