Trump’s Tariff Typhoon: Where India Stands Amidst the Wreckage

Our roof has been blown off but others have been razed to the ground, writes Aunindyo Chakravarty.

In the industries which have been hit hard—electronic products, textiles and apparel, gems and jewellery—India’s competitors are worse off, writes Aunindyo Chakravarty.

(Photo: Kamran Akhter/The Quint)

Imagine a mega hurricane is raging through a town. As it marauds down its unpredictable path, it randomly sweeps away entire buildings; some have their roofs blown off. When the devastation ends and things have to be rebuilt from scratch, those with the least damage end up as winners.

India seems to be in a similar position in the face of Donald Trump’s tariff typhoon. Our roof has been blown off, but we are still standing, while others have been razed to the ground.

For starters, medicines, our most important exports to the United States, have been kept out of the new tariff regime. This is why pharma stocks rallied a day after the tariff announcements. Most analysts were expecting the US to impose a 7-9 percent import duty on drugs made by Indian companies, and investors had priced that in.   

There’s no new bad news for makers of auto parts and aluminium—two of our other big exports to the US. The Trump administration had already levied a 25 percent tariff on them, and that hasn’t changed. In fact, if anything, it is lower than the 27 percent overall reciprocal tariff that the US has announced on Indian goods.

India’s Competitors Suffer More

Even in the industries which have been hit hard—electronic products, textiles and apparel, gems and jewellery—India’s competitors are worse off.

Take electronic products, for starters. India exported about $14.5 billion worth of electronics, smartphones, and electrical products. More than 45 percent out of that was just iPhones ‘made’ in India and then exported to the US. Earlier, the US charged less than half a percent in tariff on these products. Now, it will jump to 27 percent.

This would have been a huge setback had Trump not imposed even higher tariffs on China (34 percent) and Vietnam (46 percent). So, if an Indian-made iPhone becomes more expensive for American consumers, the one’s made in China would cost even more.

Apple, which was planning to make iPhones in Vietnam—iPads, AirPods and Apple Watches are already made there—might have to rethink its manufacturing strategy, and India might be the beneficiary.

We also export nearly $11 billion worth of textiles and clothing to the US. Till now, they faced an average tariff of nine percent; that will triple now. But here again, the biggest exporters of textiles and garments are in a much worse situation—the blanket reciprocal tariff on Bangladesh is 37 percent, Sri Lanka 44 percent, and Thailand 36 percent, other than the 46 percent and 34 percent on Vietnam and China, respectively.

Even in the case of gems and jewellery, which is likely to be the worst-hit among India’s key exports to the US, our competitors have been slapped with bigger tariff hikes.

Till now, our gems and jewellery exports faced just a two percent tariff when they entered the US market. The steep 25 percentage point hike will definitely make Indian jewellery significantly more expensive, but our biggest competitors in this sector—China, Hong Kong, Thailand—face even steeper tariff hikes.

The Price Sensitivity Factor

So, is there an opportunity here for India? There are too many moving parts here for any definitive answer.

The most important of these is how sensitive US consumers are to price changes.

The traditional ‘decision tree’ of the US consumer was driven by the following order of choices: what to buy, followed by the brand, then the type of package, and finally the price. This hierarchy appears to have flipped in the past few years, thanks to runaway inflation in the US.

Now, most consumers have a fixed budget to work with. One study suggests that 74 percent of American consumers are ‘trading down,’ or switching to cheaper brands to save money.

Another sign of growing price-sensitivity is ‘shrinkflation,’ where companies are reducing the amount they put in a pack, while keeping prices constant. It has become so common in the US now that last year, the Democratic Senator from Pennsylvania, Bob Casey, wanted to get a law passed against it, called the ‘Shrinkflation Prevention Act of 2024.’

In such a situation, any change in price could lead to a sharp fall in demand. If Trump’s tariffs stay, then all imports into the US will become significantly more expensive. US consumers will reduce their consumption, because they are restricted by their limited budgets.

The only way to counter this is for exporters to reduce their prices.

Take apparel, as an example. Till now, if a shirt was exported at Rs 300, its final price in the US, after the old nine percent tariff, was Rs 327. Now, if an Indian exporter wants to keep the final price in the US the same, they will have to sell the shirt for Rs 257, since the new 27 percent tariff will add another Rs 70 to its retail price.

In other words, an Indian garment exporter will need to take a 14 percent hit in margins to be able to maintain their sales volumes. The cut will need to be even deeper for them to expand their market share. This is very tough to do, given the narrow profit margins that exporters work with.  

Only a nation with massive capital to play with can counter this tariff offensive. They could provide subsidies and low-cost funds to their manufacturers to flood the US market with cheap goods. This will entirely undercut the Trump administration’s plan to rebuild US manufacturing.

A Geopolitical Balancing Act

Some observers have argued that this is the policy China has adopted when it comes to Artificial Intelligence (AI) and Electric Vehicles (EV).

Chinese EV manufacturers, such as BYD, are allegedly being backed by the state to price out Tesla, while AI companies, like Deepseek are being subsidised to severely undermine the valuations of American tech companies.

Prime Minister Modi has recently indicated that India is open to working with China, saying “the two countries are partners that contribute to each other’s success.”

In this extremely uncertain geopolitical scenario, India will have to strike a very fine balance between cooperating with and competition against China, while simultaneously navigating strategic alignment with—and resistance to—Trump’s America.

(The author was Senior Managing Editor, NDTV India & NDTV Profit. He tweets @Aunindyo2023. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)