What’s at Risk Now That US Is Imposing 50% Tariffs on Indian Exports

Could It Lead to Export Losses, Rupee Slide and Investor Pullback?

August 26, 2025

The United States is going ahead with tariffs of up to 50 percent on Indian exports after trade talks between the two countries broke down. This is expected to increase economic pressure on India due to its oil trade with Russia, and could lower export earnings, hurt export industries and slow overall economic growth.

According to the U.S. Homeland Security Department, the new tariffs, effective from Aug. 27, follow five unsuccessful rounds of bilateral negotiations, as reported by Reuters.

The additional 25 percent duty, announced by President Trump, raises the total tariff to one of the highest levels currently levied by the U.S. The move is a direct response to India’s increased oil imports from Russia, which rose from under one percent before the Ukraine war to 42 percent of India’s total oil imports. U.S. officials accused India of indirectly supporting Russia’s war effort through these purchases, according to the newswire.

India’s commerce ministry has acknowledged that no immediate relief is expected, said the newswire.

Exporters affected by the tariffs will be offered financial support, including loan subsidies and assistance to explore markets in China, Latin America and the Middle East. However, several exporter groups warn that these measures are inadequate.

Industry estimates suggest the tariffs could impact 55 percent of India’s $87 billion in exports to the U.S., particularly affecting textiles, leather, food processing and gems, according to the newswire. India’s diamond sector, already weakened by reduced Chinese demand, may lose nearly a third of its U.S. market.

Export leaders have reported a complete halt in new U.S. orders and project that shipments may fall by 20 to 30 percent starting September.

The rupee dropped to a three-week low and equity markets posted their worst decline in three months, indicating larger market anxiety.

The U.S., meanwhile, has stated it remains open to energy collaboration and stressed its willingness to support India’s energy security.

The economic impact of these tariffs will be both immediate and unevenly distributed.

Sectors like engineering goods, textiles, jewellery and processed foods may see a drop in production. Economists call this a “terms-of-trade shock,” which happens when a country’s exports become less competitive, leading to lower sales abroad without gains in other markets. This means India’s export prices, compared to what it pays for imports, are likely to worsen.

If India earns less from exports due to higher U.S. tariffs but continues to import at the same or higher levels, the gap between what it earns and what it spends in foreign trade, called the trade deficit, grows. A larger trade deficit increases demand for foreign currency, putting downward pressure on the rupee’s value. A weaker rupee makes imports more expensive, raises production costs, and reduces purchasing power, which can slow business activity and overall economic growth.

If businesses are expected to earn less because of fewer exports, investors may pull out their money, which can make the stock market fall. The one percent drop in stock prices shows this shift, as investors lower their expectations for company profits.

The government’s plan to give financial help to exporters, like cheaper loans and support for finding new markets, will add pressure to its already stretched budget. This kind of spending is meant to soften the impact of an economic slowdown, but whether it works depends on how well it is targeted and how much is spent. If other markets do not buy enough Indian goods, this support may only slow down the decline instead of helping the economy recover.

India missed a chance to handle this trade breakdown through economic diplomacy. It could have offered to slowly reduce its Russian oil purchases in exchange for a deal to limit U.S. tariffs. India says it buys oil based on what is cheapest, but the U.S. cares more about the political message behind such choices. So even if India was acting for economic reasons, the U.S. saw it as a political decision and responded with tariffs. A clear promise to cut Russian oil imports over time might have helped avoid this sharp tariff hike.

Quiet negotiations, such as offering to buy more oil from U.S. companies instead of Russia, could have turned the dispute into a business deal rather than a political standoff.

Over time, India may try to reduce its reliance on the U.S. by trading more with other regions like Latin America or the Middle East. But this move will take years, because it depends on whether those markets actually want the same products, how easily goods can be transported, and whether there are local rules that make trade harder. In areas like diamonds or engineering goods, where U.S. buyers are key, moving exports elsewhere is especially difficult and cannot happen quickly.

The bigger danger is that Indian exporters may stop feeling confident about future trade, because the rules no longer seem stable. If tariffs are used as a way to apply political pressure, companies may hesitate to invest in expanding their export businesses. It’s called a “hysteresis effect,” where a short-term problem causes lasting damage because it changes how businesses think and act. If the situation continues, Indian companies may become more cautious, which could hurt their ability to compete globally.

The government must now consider if its position still makes sense for the country’s economic growth and stability. It can still make changes, but the longer it waits, the harder it becomes to limit the damage.

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