Trump accused India of maintaining some of the “most strenuous and obnoxious non-monetary trade barriers” and of running a “massive” trade surplus with the US.
The decision has sent the rupee tumbling, posting its steepest one-day drop since May and hit a five-month low on Wednesday.
What US tariff means for Indian markets
Nilesh Shah, MD at Kotak Mahindra AMC, called the tariff move a clear negative for the markets. “Despite unpredictable US policy moves, markets were expecting a tariff deal to eventually work out because long-term US-India strategic interests are aligned,” he said.He hopes that cooler heads will prevail and that a “TACO” (Trade Agreement on Competitive Offerings) deal could still materialize if both sides reassess their red lines.
However, Shah also issued a cautionary note, urging India to take this moment to accelerate internal reforms that enhance competitiveness.
“Our biggest deterrence continues to be our GDP size and productivity. China is defying US pressure because of scale and competitiveness. India must learn from that.”
India and the US had opened wide-ranging trade talks earlier this year, with hopes that a deal could be signed by mid-2025. However, disagreements over market access, especially in agriculture and dairy, stalled negotiations.
Trump has often used tariffs as a blunt instrument to force compliance — a playbook he appears to be returning to with renewed fervor. Should he tighten the screws further, India may be forced to recalibrate its trade strategy not only with the US, but globally.
According to Garima Kapoor, EVP at Elara Capital, the new tariff puts India at a disadvantage against export competitors like Vietnam, Indonesia and the Philippines, which continue to enjoy lower tariff rates into the US market.
If pharmaceuticals are included in the tariff ambit, the damage could be significant. The US accounts for over 30% of India’s pharma exports, making it a key pillar of India’s outward trade.
The lack of clarity on whether pharma and high-value goods like auto components and steel will be taxed uniformly is adding to the market’s unease.
Kapoor warns that if a trade deal is not reached by September or October, India’s full-year GDP growth could see a downward revision of at least 20 basis points. However, she notes that the delay might be a blessing in disguise.
“A hotchpotch deal that gave away too much on agriculture and dairy could have had far-reaching political and social costs. A well-negotiated deal, even if delayed, is preferable,” she said.
“The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India’s GDP growth. The extent of the downside will depend on the size of the penalties imposed,” said Aditi Nayar, Chief Economist, ICRA said.
All in all, experts say the market will have to live with volatility and the hope that this pressure leads to a deal.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
