Trump's Protectionist Policies: Potential Transformation of India from Trade Ally to Economic Struggle
In a significant turn of events, the United States has imposed a 25% tariff on Indian exports, effective from August 7, 2025. This decision, announced by former President Donald Trump, comes after a series of disagreements over India's stance on opening up its farm trade and defense purchases.
India, however, entered the trade negotiation with favourable starting conditions. Unlike the US, it did not have commodities like oil, high technology industries, a large trade surplus with the US, or dependence on US foreign policy for regional conflicts.
The impact on India's GDP, if a significant part of US exports is lost, is estimated to be around 0.5%. However, the tariff hikes could potentially dent the economy more significantly.
Despite the challenges, India is not backing down. To navigate the fallout and preserve investor confidence, the country is pursuing a combination of strategic measures.
Firstly, India is promoting strong Indian brands and reducing dependency on price-sensitive exports. This involves brand building and moving away from relying on subsidies that may aggravate tariffs.
Secondly, the government is encouraging export sectors to adopt employment-linked schemes and capacity retention plans to maintain competitiveness and job security, especially in vulnerable sectors like marine exports.
Thirdly, India is engaging in back-channel diplomacy and maintaining restraint to avoid escalating tensions with the US. The aim is to quietly de-escalate while protecting trade interests.
Fourthly, India is diversifying its export portfolios towards higher-value and less tariff-exposed manufacturing sectors such as electronics and electric vehicle (EV) components. This can help reduce reliance on sectors facing hefty tariffs like textiles and gems/jewellery.
Fifthly, India is leveraging its ongoing reforms to boost domestic and foreign investment. This includes liberal FDI policies, simplified tax structure, ease of doing business reforms, and public/private infrastructure investment. These reforms sustain investor confidence despite external trade pressures.
Sixthly, India is pursuing geopolitical balancing, particularly in energy sourcing by diversifying oil imports from multiple countries to mitigate risks from US secondary sanctions and global oil market dynamics.
These strategies collectively help maintain the resilience of India's export economy, attract and retain global investment, and preserve long-term economic growth prospects amid the tariff challenges posed by the US government.
It's important to note that the tariff hikes come after India has increased import duties in its quest for self-dependence and to promote 'Make in India'. The US institutional investors, however, have significant investments in India's equity and bond market, with approximately USD 350 billion of US resident money invested in Indian capital markets.
Moreover, India received USD 32 billion from its diaspora in the US as remittances. Trump's tariff hikes were announced following his dissatisfaction with trade negotiations and his view of India's purchases of Russian oil as a big aspect of funding Putin's war efforts. If the tariff rate remains at 50%, a large share of Indian exports to the US will be uncompetitive.
India must ensure that such situations do not make the country 'un-investable' from a geopolitical risk perspective, while retaining its sovereignty and not bowing down to threats and intimidation. The tariff hikes could potentially dent India's GDP by 0.5%, with services exports, especially IT and business services, being significantly affected.
- The financial sector is closely watching the trade dispute between the United States and India, as a 25% tariff on Indian exports could impact the economy, investments, and wealth management.
- In the market, DeFi platforms are gaining traction as investors consider alternate pathways for wealth creation, amid the uncertainties triggered by political disagreements.
- India's portfolio diversification strategies aim to reduce dependence on sectors facing high tariffs, moving towards growth segments like electronics and electric vehicle components.
- Personal finance advisors are urging investors to exercise caution, given the potential impact of tariff hikes on the stock market and capital flows between the US and India.
- Meanwhile, the sports industry observes the trade friction with interest, particularly in the sports betting sector which may face regulatory challenges due to the changing geopolitical landscape.
- The general news and crime-and-justice segments discuss the tariff implications combining politics and economics, focusing on potential risks for bilateral trade and global commerce.
- As India strives to protect its trade interests, the debate about adopting strong Indian brands and moving away from subsidies touches upon national branding strategies and their role in the broader economic context.
- Business leaders emphasize the need for India to maintain a strong negotiating stance while ensuring long-term stability and growth, both in domestic and international markets.
