US Tariffs on Indian Goods: Economic Impact and Industry Fallout

The United States' latest decision to levy substantial tariffs on Indian goods is predicted to burden its own economy, escalating inflationary pressures and hampering economic growth, as highlighted by a report from the State Bank of India (SBI).

The report elaborated on potential economic repercussions, estimating a 40-50 basis points decrease in US GDP due to these tariffs, alongside anticipated increases in input cost inflation. Initial indicators of mounting inflation have surfaced, attributed to the tariff-induced pass-through effects and a depreciated dollar.

Import-sensitive industries such as electronics, automobiles, and consumer durables are experiencing pronounced impacts. Inflation in the US is expected to persist above the 2% target until 2026, driven by supply-side constraints from elevated tariffs and exchange rate fluctuations.

The US has sanctioned tariffs impacting approximately USD 45 billion in Indian exports, affecting labor-intensive sectors like textiles and gems. Meanwhile, pharmaceuticals, smartphones, and steel exports remain largely shielded due to current exemptions and stable domestic demand.

Should the full extent of the proposed tariffs affect all USD 45 billion of exports, India might see a shift from trade surplus to trade deficit with the US in a worst-case scenario. Nevertheless, the report maintains an optimistic view, anticipating resolution through trade talks to boost US-bound exports.

The SBI report also noted tariff disparities: 50% on Indian, 30% on Chinese, 20% on Vietnamese, 19% on Indonesian, and 15% on Japanese exports. India, which has increased its market share in US textiles, stands to face significant challenges as tariffs on goods like gems and jewelry rise to 50%.

(With inputs from agencies.)