Indian exporters are bracing for a fresh wave of tariffs after the United States imposed an additional 50 per cent duty, which became effective from August 27, on top of the existing 2.5 per cent baseline. Half of this penalty stems directly from India’s continued oil trade with Russia. Under Section 232 of the US Trade Expansion Act of 1962, tariffs can be raised on national security grounds, though strategic exemptions apply to pharmaceuticals, semiconductors, electronics, petroleum products, and some auto parts. The real blow is being felt in sectors where Indian exporters are the most vulnerable — garments, leather goods, and gems and jewellery. Import duties are more than 60 per cent for these industries.
The consequences are immediate and severe. Indian apparel has steadily expanded its presence in the US market, competing head-to-head with Vietnam and Bangladesh. “Made in India” shirts and textiles now line the shelves at leading retailers like Banana Republic, Macy’s, and Gap, alongside smaller fashion labels. With the new tariff regime coming into force, many of these producers will simply be priced out. Some sectors have as much as half their output exposed to the US, and at these duty levels, most will not survive. True, exports enjoyed a temporary boom as US buyers made pre-emptive purchases ahead of the tariff deadline, but that respite is short-lived. Already, advance orders are drying up.
Even for the US, the tariffs are self-defeating. Optimistic forecasts suggest revenues of $2.1 trillion over the next decade, but that pales beside the $4.5 trillion gap created by Trump’s sweeping tax cuts, leaving the budget deficit to swell by $3 trillion. Treasury markets will feel the pressure, debt levels will rise, and long-term stability will suffer. Trump’s promise of a manufacturing revival collides with a labour shortage of his own making. His hard line on immigration has drained farms and small businesses of workers, forcing his administration to relax enforcement quietly. In skilled sectors, hiring has stagnated as companies turn to AI-driven productivity instead.
Consumers in the US are already paying. The prices of everyday staples — eggs, chicken, meat — are climbing as restrictions on imports from Mexico and China ripple through grocery stores. And the worst is yet to come. Once US producers run down their pre-tariff inventories, households will face sharper price hikes. Inflation eats away at Trump’s negotiating leverage abroad and his political capital at home.
Industries, too, are hurting. The automobile sector illustrates the problem vividly. Ford has reported $800 million in losses, while General Motors has lost over $1 billion. The reason: Tariffs on imports from its own plants in China and Canada stand at 25 per cent, far higher than the 15 per cent levied on rivals from Japan or the EU. Meanwhile, competitors abroad adapt by depreciating currencies, rerouting supply chains, and relocating production to third countries to bypass US tariffs. Trump’s erratic bilateral deals will only accelerate this process. Predictably, “tariff shopping” flourishes as firms shift operations to low-tariff jurisdictions and re-export to the US, blunting the very impact Trump seeks.
One must understand that these tariffs are not only a reflection of Trump’s personal views. His policies are driven by a circle of advisors steeped in protectionist thinking and are a continuation of past attempts at geopolitical changes. US Trade Representative Jamieson Greer has condemned the “nameless global order dominated by the WTO,” for which “the U.S. has paid with the loss of industrial jobs and economic security”. Peter Navarro, Trump’s economic confidant, has gone even further, branding India’s import of Russian crude and export of refined products to the US not as a comparative advantage, but as a conspiracy. Strange as it sounds, this is the rationale shaping US tariffs.
The persistence of tariffs (they are not going to be reversed in a hurry) has less to do with economics than with politics and ideology. Trump often invokes President William McKinley, whose 19th-century protectionism sought to shield US industry behind high walls. In today’s interconnected world, such ideas seem anachronistic, yet they double as political theatre. Tariffs are not just about trade; they are symbols of national assertion and personal vindication. Trump’s quest for recognition — including the elusive Nobel Peace Prize once awarded to Barack Obama — sometimes bleeds into trade policy. His frustration with Russia’s war in Ukraine has fueled punitive measures against India’s oil trade, even as these moves undermine US supply chains. In this sense, tariffs are also a signal to China and Russia, with India caught as collateral damage.
So how should India respond? In the short term, the priority must be to cushion the blow for MSMEs, who will be devastated as larger producers relocate. Relief could come through tax measures — some relief has come after several vulnerable export products were placed in the lower 5 per cent GST bracket. The details are still to emerge. In the longer run, India must diversify its export markets toward the EU, UK, and even China, while pursuing trade agreements with the US that carve out sector-specific protections. Diplomatically, managing Trump’s ego will be as important as managing his policies. Symbolic gestures — especially if he lays claim to brokering peace in Ukraine — may be as effective as formal negotiations in restoring goodwill. Those discussing political retaliation must remember that India’s exports of services (mainly to the US) now exceed commodity exports and are not affected by reciprocal tariffs. We don’t want attention being diverted to that.
The irony could not be sharper: Trump’s tariffs hurt US consumers and producers more than foreign competitors. Yet they persist because they serve his political ambitions, ideological instincts, and vanity. For India, the lesson is clear. It must prepare for the uncertainties of Trump’s economic nationalism not by reacting in panic, but by hedging carefully. Jumping into agreements like RCEP in haste would only weaken India’s bargaining power elsewhere. Better instead to diversify, negotiate shrewdly, and let the internal contradictions of Trump’s policy play themselves out.
After all, 2028 is not so far away.
The writer is former director, IIFT and a visiting professor at Shiv Nadar University
