Can India-US Tariff Issue Be Resolved Amicably?

Communication channels between India and the US are open to resolve the ongoing tariff issues, and the glitch in trade ties is only temporary, given the long-term relationship between the two nations, government sources said on Wednesday.

Illustration: Dominic Xavier/Rediff

The US’ 50 per cent tariffs on Indian exports to America came into effect from August 27, barring a few sectors.

According to the sources, there is no need for panic for exporters as the impact of these high tariffs are unlikely to be as severe as feared given the diversified nature of Indian exports.

They added that India’s exports to the US during the first four months of this fiscal year has risen 21.64 per cent to $33.53 billion.

Going by the trend, the exports may touch the last year’s figure ($86.5 billion), one of the sources said.

“Communication channels are open between India and the US to resolve the ongoing tariff issues… it is a temporary phase in a long-term relationship,” they said.

Meanwhile, in an interview with Fox Business, US Treasury Secretary Scott Bessent has described the India-US relationship as “very complicated” but hoped that “at the end of the day, we will come together”.

“This is a very complicated relationship. President (Donald) Trump or Prime Minister (Narendra) Modi have very good relationships at that level.

“And it’s not just over the Russian oil,” Bessent said.

His comments came hours after the additional 25 per cent penalty imposed by Trump on India for its purchases of Russian oil came into effect from August 27, bringing the total amount of levies on New Delhi to 50 per cent.

Sources added that there are positive signals coming from both sides and “we need to build upon that”.

They also said the government is working on measures to insulate domestic exporters from the impact of the US tariffs.

The commerce ministry is holding a series of stakeholder consultations this week from sectors such as chemicals, gems and jewellery to discuss ways to push India’s exports in new markets.

Work is also progressing fast on the formulation of the Export Promotion Mission, announced in the Budget for 2025-26.

“In the next 2-3 days, the ministry will meet stakeholders on the diversification of exports,” an official said.

The steep 50 per cent tariff on Indian goods entering the US, which came into effect from August 27, will impact India’s exports worth more than $48 billion to America.

The sectors, which would bear the brunt of high import duties imposed by the Trump administration include textiles/clothing, gems and jewellery, shrimp, leather and footwear, animal products, chemicals, and electrical and mechanical machinery.

Sectors such as pharma, energy products and electronic goods are out of the ambit of these sweeping duties.

The US accounted for about 20 per cent of India’s $437.42 billion worth of goods exports in 2024-25.

The US has been the largest trading partner of India from 2021-22.

In 2024-25, the bilateral trade in goods stood at $131.8 billion ($86.5 billion exports and $45.3 billion imports).

India is also planning dedicated outreach programmes in 40 countries, including the UK, Japan, and South Korea, to push textiles exports.

Together, these 40 countries represent more than $590 billion in textile and apparel imports, offering vast opportunities for India to enhance its market share, which stands at only 5-6 per cent, the official said.

According to exporters, these high tariffs will have impact on their cost competitiveness in the US as their competitor countries, including Bangladesh, Thailand, Vietnam, and Indonesia are being subjected to lower duties by America.

Exporters said the imposition of a 25 per cent penalty on India over and above the 25 per cent tariffs move will disrupt the flow of Indian goods to its largest export market.

Mithileshwar Thakur, secretary general, AEPC (Apparel Export Promotion Council), has said the textiles sector, with exports of $10.3 billion to the US, is one of the worst-impacted sectors.

Similarly, a leather exporter said some of the companies have orders in hand for 2-3 months, but the US firms are demanding about a 20 per cent discount to retain the orders.

Economic think tank GTRI said the US tariffs will hit 66 per cent of India’s $86.5 billion exports to America.

“The United States’ new tariff regime marks one of the most severe trade shocks India has faced in recent years.

“With over two-thirds of India’s $86.5 billion exports to the US now subject to prohibitive 25-50 per cent duties, critical labour-intensive sectors face sharp declines in competitiveness and employment,” GTRI founder Ajay Srivastava has said.

He said India’s exports to the US are set to fall steeply to about $49.6 billion in FY26 due to Washington’s new tariff regime.

Exporters have urged the government to announce steps to deal with these high tariffs.

They have urged a moratorium on payment of principal and interest for loans up to a period of one year.

Besides, expanding PLI schemes, enhancing infrastructure, and investing in cold-chain/storage assets to strengthen competitiveness and aggressive market diversification through accelerated trade agreements (FTAs) with the EU, Oman, Chile, Peru, GCC, Africa, and other Latin American countries, with a provision for early-harvest for labour-intensive sectors, should be prioritised, FIEO said.

It appeals for swift, coordinated action among exporters, industry bodies, and government agencies to protect livelihoods, reinforce global trade links, and navigate this turbulent phase.