As Trump backs out of trade talks, tariff tantrum to take a toll on the Indian economy

A day after imposing a 50% tariff on India, US president Donald Trump has ruled out trade talks with India, thereby putting the brakes on the ongoing trade negotiations between the countries.

India and the US have held five rounds of negotiations for a bilateral trade agreement and both the sides were supposed to meet in New Delhi on August 25.

It may be noted that 25% tariff on India has kicked off on August 7 and the additional 25% levy, as announced by the Trump administration on Wednesday, will be applicable in the next 21 days.

A 50% tariff on India is almost like a trade barrier at those levels, as Indian exports may lose cost its advantage over other nations. It may be noted that India exported goods and services worth $212.3 billion to the US in 2024, registering an 8.3% growth ($16.3 billion) over 2023. Goods exports to the US in 2024 stood at $87.3 billion, up 4.5% ($3.8 billion) from 2023.

In response to the Trump administration imposing a 25% additional tariff on India, the ministry of external affairs said India will protect its national interests. Prime Minister Narendra Modi, too, has said that India will never compromise with the interests of its farmers.

That said, the move will have multi–faceted ramifications on the Indian economy. It will have an impact on the gross domestic product (GDP) growth as well as various export sectors. Brokerages are of the view that the US’s 50% tariff on India is likely to dent the Indian GDP by up to 80 basis points.

In the wake of imposition of 25% tariff on India by the Trump administration with effect from July 7, Goldman Sachs estimated a direct hit of 0.30% on India's GDP growth.

Goldman Sachs on Thursday said if the new additional duty is enforced, then that would constitute a potential incremental drag of around another 0.1 percentage points (pp) annualised. It, however, added that GDP projections are not being revised as of now as there is still time for the additional tariffs to take effect.

"We had previously flagged a downside risk of 0.2pp to our baseline FY26 GDP growth forecast of 6.2% in reaction to the initial 25% tariff imposition. If the additional penal 25% materialise, then the hit could be higher, depending on their duration," Nomura said.

Morgan Stanley expects a downside risk of 40-80 bps if tariffs persist at a higher level for a longer period.

The move will have an impact on sectors like leather, chemicals, footwear, gems and jewellery, textiles, and shrimp. Metals and auto parts will also be under higher tariff basket, while semiconductors, chemicals, and pharmaceuticals may have lower tariffs going forward.

According to the Global Trade Research Institute (GTRI), multiple products will see effective tariff of even more than 50%. The institute said knitted clothes will attract 63.9% tariff, while the woven clothes will have tariffs up to 60.3%. The institute said textiles will attract a tariff of 59%, organic chemicals (54%), carpets (52.9%), furniture, bedding, mattresses (52.3%), diamonds, gold (52.1%), machinery and mechanical appliances (51.3%).

In its assessment of the sector-wise losses to Indian business, GTRI said gems and jewellery may witness losses to the tune of $12 billion, while textiles and clothing will see losses to the tune of $10.3 billion. According to the institute, electrical and mechanical machinery will face losses worth $9 billion, and chemicals may face a $2.34-billion impact. The leather and footwear industry will face an impact to the tune of $1.18 billion, according to GTRI.

Confederation of Indian Textile Industry (CITI) has pointed out that Indian textile and apparel exports to the US had started to slowdown in the wake of 25% tariff announcement. After a promising performance in the first quarter of the 2025 calendar year, there was a notable slowdown in textile and apparel exports from India to the US in June 2025, according to the industry body.

It may be noted that against a 50% tariff rate on Indian exports, the new US tariff rate for Bangladesh is 20%. The latest US tariff rate for Indonesia and Cambodia are 19% each. The tariff rate for Vietnam is 20%. Currently, China is the biggest exporter of textiles and apparel items to the US, followed by Vietnam, India, and Bangladesh.