US Announces 25% Tariff on Indian Imports, Impacting Key Sectors and Markets

The imposition of a 25 per cent tariff on Indian imports by the United States, as articulated in recent policy statements from the Trump administration, threatens to disrupt established trade flows and exert downward pressure on equity markets in both nations, with broader implications for global supply chains and inflationary trends.

Context of US Tariff Policies

Since the start of the second Trump administration in early 2025, tariff measures have been deployed as a tool to address perceived trade imbalances. These policies have targeted multiple trading partners, including a 17 per cent duty on Israeli goods in April 2025 and a 25 per cent levy on Japanese automotive imports, which triggered a 7.8 per cent decline in the Nikkei 225 index on 7 April 2025. For India, the proposed 25 per cent tariff builds on earlier reciprocal threats, with internal analyses from New Delhi estimating that such measures could affect 87 per cent of India’s exports to the US, valued at USD 66 billion annually as of March 2025.

Historical comparisons reveal the scale of potential disruption. During the first Trump term, tariffs on Chinese goods led to a cumulative economic cost estimated at USD 195 billion by 2020, according to data from the Tax Foundation. In the current cycle, the Tax Foundation projects that ongoing tariffs equate to an average tax increase of nearly USD 1,300 per US household in 2025, underscoring the domestic repercussions alongside international tensions.

Economic Impact on India

India’s economy, which grew at 8.2 per cent in the fiscal year ending March 2025 (April 2024 to March 2025), relies heavily on exports to the US, particularly in sectors such as information technology services, pharmaceuticals, and textiles. The finance ministry in New Delhi has warned that trade performance may deteriorate in the quarters from July to September 2025 and October to December 2025 due to tariff uncertainties. Bloomberg reports indicate that India is preparing for tariffs ranging from 20 per cent to 25 per cent, potentially increasing costs for US importers and reducing demand for Indian goods.

A study highlighted by the Times of India suggests that these tariffs could elevate US factory costs by 2 per cent to 4.5 per cent, with risks to employment, artificial intelligence-driven growth, and corporate margins. For India, this translates to a potential contraction in export volumes. Data from the Ministry of Commerce and Industry shows that US-bound exports reached USD 77.5 billion in the fiscal year ending March 2025, up from USD 64.1 billion in the prior year, but tariffs could reverse this trajectory.

Sector-Specific Vulnerabilities

Certain Indian sectors face acute exposure:

• Pharmaceuticals: Accounting for 13 per cent of India’s exports to the US (USD 10.1 billion in the year ending March 2025), tariffs could raise prices for generic drugs, impacting US healthcare costs and Indian revenues.
• Textiles and Apparel: Valued at USD 9.8 billion in the same period, this sector may see reduced competitiveness against alternatives from Vietnam or Bangladesh.
• Information Technology: Services exports, not directly tariffed but affected by supply chain ripple effects, totalled USD 25.3 billion, with potential slowdowns in outsourcing contracts.

Equity markets in India have already shown sensitivity. The BSE Sensex dropped 1.2 per cent on 29 July 2025, following tariff-related announcements, compared to a 0.8 per cent gain in the prior week.

Implications for US Markets and Global Trade

In the US, tariffs are largely absorbed by domestic firms, as evidenced by Deutsche Bank’s analysis that companies have shouldered costs through narrower profit margins rather than passing them to consumers. This dynamic has kept consumer prices stable as of July 2025 but eroded corporate earnings. For instance, S&P 500 firms with significant exposure to Indian imports, such as those in the consumer goods sector, reported a 0.5 per cent average margin compression in the quarter ending June 2025 (April to June 2025).

Globally, J.P. Morgan’s research notes that tariff escalations have introduced volatility, with the MSCI World Index declining 2.3 per cent in the week ending 26 July 2025. Markets have occasionally shrugged off announcements, as seen in muted responses in European and Asia-Pacific indices on 8 July 2025, but sustained policies could amplify risks.

Market Data Snapshot

The Indian rupee’s depreciation against the US dollar reflects investor caution, potentially exacerbating import costs for India.

Potential Mitigations and Forecasts

Negotiations offer a pathway to resolution. In March 2025, India expressed willingness to reduce tariffs on 55 per cent of US imports worth USD 23 billion, potentially averting escalation. Economist forecasts from Nomura and Morgan Stanley identify India as highly exposed, projecting a 0.5 to 1.0 percentage point drag on GDP growth for the fiscal year starting April 2026 if tariffs materialise.

Based on historical patterns from 2018-2019 tariffs, an AI-derived projection estimates a 3 to 5 per cent decline in bilateral trade volumes by December 2025, assuming no deal is reached. This forecast draws on quantitative data from the World Trade Organization, adjusted for current export compositions.

Sentiment from verified accounts on platforms like X, including analyses from financial outlets, leans cautious, with discussions highlighting risks to emerging market equities.

Conclusion

While tariffs aim to recalibrate trade balances, their implementation risks broader economic fallout, including heightened inflation and market volatility. Investors should monitor diplomatic developments closely, as resolutions could stabilise affected sectors.

References

BBC. (2025, June 4). What are tariffs, how do they work and why is Trump using them? Retrieved from https://www.bbc.com/news/articles/cn93e12rypgo

Bloomberg. (2025, July 28). India Warns of Trade Risks Amid Trump Tariffs, Global Slowdown. Retrieved from https://www.bloomberg.com/news/articles/2025-07-28/india-warns-of-trade-risks-amid-trump-tariffs-global-slowdown

CNBC. (2025, July 8). Global stock markets are calling Trump’s bluff on tariffs. Retrieved from https://cnbc.com/2025/07/08/trump-tariffs-global-stock-markets-call-presidents-bluff-ftse-100-sp-500-nasdaq-dow-jones-dax-nikkei.html

J.P. Morgan. (2025, July 17). US Tariffs: What’s the Impact? Retrieved from https://www.jpmorgan.com/insights/global-research/current-events/us-tariffs

Reuters. (2025, May 12). Major developments in Trump’s trade war. Retrieved from https://www.reuters.com/business/autos-transportation/how-trumps-chaotic-trade-war-has-evolved-2025-05-12/

Tax Foundation. (2025, July 16). Trump Tariffs: The Economic Impact of the Trump Trade War. Retrieved from https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/

Times of India. (2025, July 29). Tariff impact: Donald Trump’s new import duties could push US factory costs up to 4.5%, economists warn; flag risks to jobs, AI growth and margins. Retrieved from https://timesofindia.indiatimes.com/business/international-business/tariff-impact-donald-trumps-new-import-duties-could-push-us-factory-costs-up-to-4-5-economists-warn-flag-risks-to-jobs-ai-growth-and-margins/articleshow/122975868.cms

unusual_whales [@unusual_whales]. (2025, July). Posts on tariff impacts. X. Retrieved from https://x.com/unusual_whales

White House. (2025, April 2). Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security. Retrieved from https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/

Wikipedia. (2025, July 29). Tariffs in the second Trump administration. Retrieved from https://en.wikipedia.org/wiki/Tariffs_in_the_second_Trump_administration