PM Modi Urges ‘Buy Local’ After US Tariffs, but the Economics Don’t Add Up

Domestic Consumption Cannot Offset Losses Caused by Reduced Export Competitiveness

August 3, 2025

Prime Minister Narendra Modi has urged citizens to buy locally made goods in an apparent response to the United States imposing a 25 percent tariff on several Indian exports. While the appeal may sound patriotic and self-reliant, it does not align with the economic realities of the moment, especially during a period of global uncertainty.

At a rally in Uttar Pradesh on August 2, the prime minister did not mention the U.S. tariffs directly, but raised concerns about slowing global growth and increasing market volatility, as reported by Bloomberg. However, his call to “buy local” was still made in a context shaped by those tariffs and larger global uncertainty. Whether he named the tariffs or not, the economic logic remains flawed.

As we know, tariffs are taxes imposed by one country on goods coming in from another. When the United States imposed a 25 percent tariff on Indian exports, it made those goods more expensive for American consumers and companies. As a result, they are less likely to buy them.

This harms Indian exporters who had been relying on that demand. The goods are still being exported, but their appeal in the foreign market weakens. This kind of situation is called an external demand shock, where foreign buyers either stop buying or reduce their purchases because of policy changes outside the exporting country. The shock does not come from within India, so looking inward to boost domestic consumption is not a direct response.

The idea of urging people to buy Indian-made products belongs to the field of domestic demand. It is about encouraging people inside the country to favour local goods over imported ones. While that may seem helpful, domestic demand does not substitute for foreign demand in most export-dependent sectors.

Exporters design and price their products for international markets, where demand is often larger and more profitable. When they lose that access or see it shrink due to tariffs, the revenue loss is real and often significant. A shift in domestic consumer habits may help some producers, but it rarely compensates for what is lost when exports fall.

From a national income point of view, a drop in exports means a drop in earnings from abroad. That affects the balance of trade and the current account, which are key indicators in macroeconomics. If a country exports less while continuing to import the same amount, its trade deficit widens. This can affect the value of the currency, reduce foreign exchange reserves and weaken investor confidence. In such a situation, governments usually respond by supporting exporters, improving the ease of doing business, negotiating new trade deals or offering incentives. These are practical tools of trade and economic policy. Appeals to consumers to shop locally do not address the balance of trade or the loss of competitiveness abroad.

There is also a risk in using patriotic appeals to push people towards locally made goods. If consumers are encouraged to avoid imports even when those are better quality or better priced, the economy becomes less efficient. This goes against the principle of comparative advantage, where countries specialise in producing what they are relatively better at, and trade with others for the rest. Interfering with this principle for symbolic reasons can raise costs, reduce productivity and eventually harm consumers. Economic nationalism of this kind tends to reduce the variety and quality of goods in the market while offering limited real benefits.

Finally, timing and context matter in economic policy. If the world was facing a disruption that affected imports into India, such as a supply chain breakdown or a currency crisis, then encouraging people to rely more on local goods would be a logical move. But that was not the case here. The trigger for the concern was a foreign government making Indian goods less competitive abroad. That called for a foreign trade response, not a shift in domestic purchasing habits.

The Prime Minister’s comment, while emotionally resonant, did not address the structural issue at hand. It was a political message, not an economic remedy.

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