If Donald Trump imposes a 100% tariff on Indian goods, it can pose some challenges to the Indian economy. The U.S. is an important trading partner, and this kind of tariff would make Indian products too expensive and uncompetitive. Let us have a look at how some sectors might feel the impact:
IT Services and Software
The U.S. is crucial for India’s IT sector, contributing over 80% of export earnings. With bilateral trade exceeding $120 billion in FY2024, even a 5% tariff could add billions in costs. Now imagine a 100% tariff.
For example, if IT services make up just 30% of this trade (about $36 billion), a 100% tariff could increase costs for U.S. clients by $36 billion. This would force U.S. companies to rethink outsourcing to Indian IT firms. Reduced demand would directly hit revenues and threaten millions of Indian jobs.
Pharmaceuticals
India is a major exporter of generic medicines to the U.S., which is a critical market for Indian pharma companies. Due to the increased tariff rate, the costs of medicine will increase significantly, affecting the competitiveness of Indian drugs in the US market.
Take Trump’s earlier focus on lowering drug prices under “America First.” If Indian generic drugs, currently a cheaper option, become costlier, U.S. buyers might shift to domestic or alternative suppliers. This would shrink India’s market share and disrupt the supply chain.
Textiles and Apparel
Textiles are a major export to the U.S., which is one of India’s largest buyers in this sector. A 100% tariff could make Indian garments unreasonably expensive. Buyers might shift to competitors like Bangladesh or Vietnam, which already have a strong foothold in the global market.
Trump has criticized India’s high tariffs on U.S. textiles in the past. A retaliatory move targeting Indian textiles could cause orders to plummet, putting millions of jobs at risk in this labor-intensive sector.
Engineering Goods and Auto Components
India exports a significant amount of machinery, electrical goods, and auto components to the U.S. The increase in tariff would inflate prices, reducing demand from U.S. buyers.
In 2024, India’s trade deficit in finished steel stood at ₹23,646 crore up to October, with imports outpacing exports. Indian steel exports to the U.S. could further decline under such tariffs. This would impact not just exporters but also downstream industries like auto manufacturing.
Forex Reserves and Market Impact
India’s forex reserves recently dropped to $656.58 billion, down from a record $705 billion just two months ago. The ₹48 billion drop reflects ongoing pressure from global uncertainties and the RBI’s efforts to stabilize the rupee, which has fallen to ₹84.50 against the dollar.
An increase in tariff rates would create challenges for Indian businesses, with the effects likely spreading across multiple sectors. From IT services losing billions in revenue to textiles losing market share, the effects would be significant. Coupled with a declining forex reserve and a weakening rupee, the economic outlook may face additional challenges. Indian policymakers and industries need to prepare for such a scenario by diversifying markets and negotiating better trade terms.