Impact on key export sectors
One of the most affected industries is gems and jewellery, which contributes significantly to India’s export earnings. The US is a key destination, accounting for nearly $10 billion of India’s $32 billion in exports in this sector. However, with the newly imposed 27 per cent additional tariff, the industry faces a possible decline in demand, which may impact its revenue. Similarly, the textile and apparel industry are under pressure, although it benefits somewhat from the fact that key competitors like China and Vietnam face even steeper tariffs of 54 per cent and 46 per cent, respectively. While this provides some relative advantage, Indian manufacturers will still have to navigate rising costs and shifting supply chain dynamics.
The automotive components sector is also facing demand challenges, with a 23.1 per cent tariff differential likely to make Indian products less competitive. India’s pharmaceutical exports, which totalled $12.72 billion last year, have been exempted from the additional tariff for the time being. Speculation is that the Trump administration is considering a sectoral policy that will soon be revealed. Additionally, Indian agricultural exports, including seafood, meat, and dairy, could also suffer due to the additional tariffs.
Strategies to mitigate impact
The government has already moved towards discussions for a bilateral trade treaty that would comprehensively address the perceived unfair practices highlighted by the US in its Foreign Trade Barriers Report recently issued by the United States Trade Representative (‘USTR’). Considering that what we are seeing is a fundamental rewiring of the global trade regime, the Indian government has renewed its engagement within its existing free trade agreements in Asia as well as with the European Union and the United Kingdom. These agreements will help redraw supply chains and diversify the markets for Indian products.
Since a stated objective of the reciprocal tariff policy is reshoring manufacturing to the US, the main competition for Indian exporters in the near future may not be in Asia but in the US. One crucial strategy is to diversify export markets. Reducing reliance on the US by exploring trade opportunities in South and Central America, West Asia, and Africa can help offset losses. To do this effectively, Indian exporters must focus on enhancing product competitiveness. Investing in quality improvement, innovation, and cost efficiency will allow Indian products to remain attractive. Companies should also seek international certifications and adhere to global standards to strengthen their brand value.
We must recognise that the ‘reciprocal’ tariff policy now put in place by the US is fundamentally reshaping the global trading system. As the world’s largest consumer market, the US historically provided a level playing field with common and low tariffs, allowing exporting countries to frame their industrial policies around supplying to it. This has now changed. The tariffs that an exporter has to pay do not depend on the market to which one is exporting, as the long-held ‘Most Favoured Nation’ obligation in the World Trade Organisation (‘WTO’) required but will vary according to the country of origin. Such a fundamental change requires an equally fundamental re-evaluation of trading strategies, as some nations face such high tariffs that efficiency gains and margin reductions may not be enough to sustain meaningful exports. It is fair to expect that going forward, new supply chains will emerge, prioritising final value addition in low-tariff regions, potentially including the US itself.
For India, the additional 27 per cent tariff places it in the lower half of targeted countries, creating opportunities beyond traditional export sectors or subsectors that we were focused on, such as fisheries, engineering goods, electronics, gems and jewellery, textiles, and apparel. The tariffs could also shift competitiveness in India’s favour in sectors where other regional exporters are more severely impacted. To maximise this advantage, India must not only negotiate with the US to maintain market access but also collaborate with Free Trade Agreement (‘FTA’) partners in Asia and elsewhere to restructure supply chains and seize new opportunities.
The writer is Trade Policy Leader, EY India (Views expressed are his personal) 
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