50% Trump Tariffs on India Come Into Effect: Textiles, Jewellery, Footwear, Chemicals Among Worst-Hit Sectors

The imposition of a 50% tariff by the United States on Indian imports is poised to have wide-ranging repercussions for India's economy, exporters, and trade relations. This substantial increase in duties, coupled with a 25% levy on Indian exports that took effect on August 27, marks a significant escalation in trade tensions between the two nations.

50% US Tariff Imposition on Indian Imports: Impact on Key Sectors

India's export landscape is now facing one of the world's most stringent tariff regimes According to a report by JPMorgan, the effective export tariff rate on Indian goods sent to the U.S. has surged to 34%, second only to China, and significantly above the 16% average rate faced by ASEAN countries. This change erodes India's competitiveness and places domestic exporters at a strategic disadvantage.

"The sharpest pressure falls on textiles, gems, jewellery, footwear, furniture and chemicals, while pharmaceuticals and semiconductor related electronics appear largely exempt. Steel aluminium copper products and passenger vehicles remain under earlier US regimes rather than the new layer," said Justin Khoo, Senior Market Analyst at APAC, VT Markets.

Textile Sector Hit Hard

The textile industry appears particularly vulnerable under these tariffs. With a 50% duty, India's competitive edge in products like cotton bedlinen and jerseys could diminish, benefiting competitors such as Bangladesh and Vietnam. Companies like Gokaldas, Indo Count, and Welspun Living rely heavily on the US market for their revenue.

Trump Tariffs' Pressure on Gems and Jewellery Industry in India

The gems and jewellery sector, a vital part of India's export economy and a major employer-particularly in Gujarat and Maharashtra-also faces the brunt of the tariff hike. A 50% import duty on Indian jewellery products in the U.S. could lead to a sharp drop in demand, impacting both employment and regional economies dependent on this trade.

Broader Economic Impact: Growth and Employment at Risk

The broader economic impact could be substantial. A tariff of this magnitude would likely result in India losing market share, endangering employment and consumption in industries that rely heavily on labour. This scenario presents a challenge for sustaining economic growth.

India had aimed to attract investments by offering lower duties compared to ASEAN competitors. However, the punitive tariff regime undermines this strategy, potentially deterring foreign direct investment (FDI) and technology transfers that are vital for economic advancement.

Current Account Deficit Concerns

While India's Current Account Deficit (CAD) remains modest at 0.6% of GDP, capital inflows have dwindled. JPMorgan warns that a prolonged tariff shock could widen the CAD towards 1.5%, exacerbating Balance of Payments issues. This situation calls for careful monitoring of financial flows.

Foreign exchange reserves amounting to $638 billion provide some protection but do not guarantee immunity from economic shocks. The Rupee's reliance on volatile portfolio flows adds another layer of complexity to managing financial stability amid these challenges.

Services Sector Vulnerability

A significant concern lies within the services sector. India's exports of IT and business services to the US are three times larger than goods exports, accounting for nearly 6% of GDP. Although currently unaffected by tariffs, any future US actions targeting services could severely impact India's growth model.

The implications extend beyond mere tariffs; they touch upon India's integration into global value chains. Without a trade agreement with the US, India risks not only losing exports but also diminishing investment opportunities and slowing job creation across various sectors.

How Will Trump Tariffs' Imposition on India Will Impact Stock Market?

"Indian equities fell around the announcement and the rupee weakened as foreign investors sold, though domestic buyers limited the slide. A 50 percent tariff does not translate directly to retail prices because importers and exporters often absorb much of the cost, which limits consumer inflation but squeezes exporter margins. In the near term, expect a softer rupee, choppier equities, and cautious foreign flows. Over time, supply chains may pivot toward alternative markets while India seeks policy support and renewed talks," said the expert Khoo.

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