Trade metrics: Tariff tantrums shape Indian exports in the 21st century

The first of a two-part series looks at India's export options: Tariffs are pushing a move towards diversification even as shipments to the US increase. It could be a win-win

India has reached a critical juncture in its international trade journey, with US President Donald Trump’s 50 per cent tariff on Indian goods exports prompting a rush for new markets in a world where every other country is scrambling, too. 

Although India’s dependence on just a few export markets over the years has been an issue in itself, the tariffs introduced a new urgency to export diversification plans.  Trade Minister Piyush Goyal has held discussions with export promotion councils and industry associations to take stock of the efforts being undertaken to diversify India’s export market, backed by a pipeline of proposed free trade agreements (FTAs).

Is the US a monopsonist? 

In economic theory, monopsony occurs where there is only one buyer of goods or services — for instance, a large factory with a township around it is the only meaningful buyer of labour from the town. Similarly, the US has been the largest buyer of goods from other countries for a long time. In 2024, the US accounted for nearly 14 per cent of global imports — its highest share since 2016.   

  Currently, major world economies are negotiating and trying to eke out trade deals with the US to secure one of their biggest export markets, even as they explore fresh export destinations. 

  Among the top 10 merchandise exporters to the US in 2024, Mexico and Canada had the highest export dependence on the US, with 81.31 per cent and 76.45 per cent of their total outward shipments bound for the US. However, conversely, the share of Mexican goods in US imports in that year was just 14.98 per cent, and that of Canada’s 12.95  per cent.

  India’s share in US imports was a meagre 2.4 per cent in 2024, although the US is India’s largest trading partner — accounting for 18.29 per cent of India’s exports in 2024 and 22.39 per cent in the first eight months of 2025. India’s exports to the US declined in August and September, before rising again in October and November this year, after Trump’s tariffs came into effect on August 27.

  At the product level, more than half the exports of electrical machinery and equipment  (which include smartphones) went to the US. Smartphones, India’s biggest goods export, to non-US countries declined from $7.08 billion in 2024 (Apr-Oct) to $5.17 billion in 2025 (Apr-Oct). But shipments of the same item to the US zoomed by nearly 200 per cent during this period. And nearly all of India’s exports of photovoltaic cells assembled in panels or modules went to the US in 2024.  The tariff tantrum has worked so far for the US, racking up $194.86 billion through customs duties in the US financial year 2024-25 (Oct-Sept) — up 153 per cent from FY24. 

  However, some cracks are beginning to show up. Amid mounting inflation concerns, the Trump administration has cut the tariffs on certain food products, which might lead to a reduction in tariff revenue collections in financial year 2026. 

  Ajay Sahai, chief executive officer of the Federation of Indian Export Organizations (FIEO), believes this move has been caused in part by a decline in the purchasing power of Americans, which in turn is due to a rise in prices. Inflation in the US reached 3 per cent in September — up from 2.3 per cent in April and the highest this year.

  “The collection itself will come down because I feel that probably their downstream industry is not in a position to absorb that (high) tariff, making them completely out-priced in the end- product segment,” he added. 

  Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), said tariffs will come down for those countries which are able to secure a trade deal with the US, which will reduce the next year’s collections.

  On whether the US is behaving like a monopsonist in its trade negotiations, Srivastava said it is using its market access as a lever — market access will come at a high cost if concessions are not given back to the US. 

  Biswajit Dhar, distinguished professor at the Council for Social Development, said the heavy demands made by the US show it has acted as a monopsonist, at least with India. 

  India’s diversification strategy

  From 2005-24, the US emerged as the largest market for Indian goods. In 2005, the US accounted for 16.48 per cent of India’s exports, which dropped consistently to hit 10.7 per cent in 

  2010 before rising gradually to 18.29 per cent in 2024 — the highest in the last two decades.

  While the share of the European Union has shown fluctuations in the last two decades without a discernible change, that of China and Asean (Association of South-East Asian Nations) has declined. 

  “India’s export diversification is a function of its export competitiveness. To an extent, we still remain focused on the domestic market,” Dhar said.

  Sahai added that Europe, with its ageing population, has undergone a demand shift, which is also a constraint. “Chinese enterprises, backed heavily by their state, offer deep discounts which no other country can match. But one positive fallout of the US tariff scenario is that each exporter now is looking into diversification seriously.” 

  Srivastava argued that diversification is difficult because all other countries are in a similar race. “The only way out for diversification is to improve our product quality and make more products which are sold in the international market,” he added. 

  India has taken the route of negotiating trade agreements with the EU, Australia, Canada, the US and Latin American nations and the UAE, among others, to accelerate its export diversification efforts. Recently, Commerce Secretary Rajesh Agarwal said that India and the US are looking to finalise a framework trade agreement soon.  

  However, its previous FTA experience with Asean, South Korea and Japan is not much to go by. Dhar said India hasn't been competitive enough to grab the opportunities offered by its trading partners.

  “They are liberalising and lowering the tariffs, but we have not been able to get access to their markets simply because we are not competitive enough or there are issues regarding our product quality. Then we start talking about reviewing these FTAs because they have not benefited us,” he added. 

  Sahai has a slightly different take. “We are now focusing on the countries which are our complementary economies and have a large import market, like the UAE, Australia, UK and EU. We are not threatened in many (domestic) manufacturing sectors in these countries. In the past, we have gone for FTAs with countries having a strong manufacturing base like Asean, Japan, and Korea, and hence, we landed in a situation where our imports outpaced exports. We are giving preference to imports of raw material and intermediates, which is making the domestic industry much more competitive,” he said.   

  Looking for new destinations

  India’s exports to Africa and Latin Am­e­rica went up by 4.56 per cent and 9.24 per cent respectively in the first seven mont­hs of this financial year, with crude oil products, automobiles and pharmaceu­ti­cals dominating. However, India’s exp­orts to these markets remain limited to relatively low technology-intensive goods from traditional industries, with the majority of techn­ol­ogy-intensive exports, such as smartphones, going to the US. 

  India’s export share to African countries has declined after reaching a peak in 2014. Sahai said purchasing power in African countries is a big factor, and so, diversification in such geographies will be limited. 

  The recent thaw in the relations between India and China, which gathered pace after the US tariffs, has propelled India’s exports to China to $12.22 billion in FY26 (Apr-Nov), an increase of nearly 33 per cent year-on-year. China was the fourth-largest export market for India in the first eight months of this financial year, after the US, UAE and Netherlands. With the Indian exports to the Netherlands struggling and dropping by around 22 per cent Y-o-Y during the same time period, China may beco­me India’s third-largest export market. As the US and China move to decouple from each other, India has an opportunity to tap the Chinese export market.

  Meanwhile, the Union Cabinet has also approved an Export Promotion Mission (EPM), with a total outlay of ₹25,060 crore for FY 2025-26 to FY 2030-31, in order to strengthen India’s export competitiveness, particularly for micro, small and medium enterprises (MSMEs), and first-time exporters in labour-intensive sectors. 

  Srivastava said EPM is a statement of intent and needs to be converted into schemes. “It's slightly hazy right now. Also, the money allocated is very little compared to the size of India's exports.” 

  Sahai hoped the government would be able to chip in via supplementary budget in case of a fund shortage. 

  Experts said even if the tariff issue is resolved in the India-US trade deal, the diversification thrust must be sustained in order to navigate any uncertainty in the geopolitical and trade scenario. India will hope that the haze over the recent trade measures will clear and its exports will shine brighter.