Trump Tariffs Impact: India's US Exports Drop 12%, But China and UAE Provide Cushion

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The Trump administration's 50% tariffs imposed in August 2025 led to a 12% sharp decline in India's merchandise exports to the US in September, but overall exports grew 6.74% to $36.38 billion, mainly driven by growth to China and UAE, while a surge in gold, silver, and fertilizer imports pushed the trade deficit to a one-year high of $31.15 billion, highlighting global trade challenges and India's diversification strategy.

Key Points

1. India's merchandise exports to the US fell 11.93% in September to $5.46 billion, showing the first impact of Trump's 50% tariffs (effective from August 27), imposed due to Russian oil imports.
2. Total merchandise exports rose 6.74% to $36.38 billion from $34.08 billion last year, supported primarily by 24.33% growth to UAE and 34.18% to China.
3. Imports surged 16.6% to $68.53 billion, leading to a trade deficit of $31.15 billion, the highest in a year, driven mainly by gold ($9.6 billion, 106.93% growth) and fertilizers ($2.3 billion, 202% growth).
4. Services exports declined 5% to $30.82 billion, while petroleum product imports fell 5.85% to $14.03 billion.
5. Labor-intensive sectors like textiles, jute, carpets, and handicrafts saw 5-13% export drops, while electronics grew 58% and iron ore 60%, likely to China.
6. From April-September 2025, US exports rose 13.37% to $45.82 billion, with imports up 9%, but recent four months showed nearly 40% decline in US exports.
7. The finance ministry estimates tariffs will affect 55% of $87 billion US exports, particularly textiles, which make up 28% of India's global T&A exports.
8. A CITI survey revealed 33% of textile respondents had over 50% turnover drop, 85% had inventory build-up, and two-thirds offered 25% discounts.
9. Commerce Secretary Rajesh Agarwal stated there is $12-15 billion scope for energy purchases from the US (mainly crude oil), useful for diversification and negotiations.
10. FIEO President S C Ralhan called the export growth proof of Indian exporters' competitiveness but emphasized boosting domestic production in sectors like electronics and machinery.

Explained

What are Trump Tariffs and how are they affecting India's exports?

Basic Definition of Tariffs: Trump administration imposed 25% reciprocal tariffs under the International Emergency Economic Powers Act (IEEPA) on July 31, 2025, and added 25% punitive tariffs on August 6 due to Russian oil imports, effective August 27, totaling 50% tariffs making Indian exports more expensive.

Historical Context: In Trump's first term (2017-2021), trade wars focused on China, but now India is targeted for increased Russian oil imports post-2022 Ukraine war, disrupting global supply chains.

Impact on India: US is India's largest export market with $87 billion in 2024-25, 55% affected; September saw 12% drop in labor-intensive sectors like textiles (28% global share), with order cancellations and discounts.

Broader Implications: This could slow global growth to 3.2% (IMF estimate), but India remains strong at 6.6% growth, though MSMEs and jobs are impacted.

What are the main reasons for the decline in India's exports and how is it measured?

Factors of Decline: 50% tariffs made US imports costlier, leading buyers to demand discounts or cancel orders; September 11.93% drop to $5.46 billion, and 40% decline over last four months, mainly in textiles, jute, etc.

Measurement Method: Export data released monthly by commerce ministry, comparing year-on-year (YoY); April-September US exports up 13.37%, but recent drop shows tariff impact.

Background Knowledge: Export decline linked to global supply chain restructuring, where India imported cheap Russian oil (increased since 2022), but this raised US pressure.

Additional Details: CITI survey showed 85% firms with inventory build-up, indicating production impacts and harming MSMEs.

How are markets like China and UAE cushioning India's export shock?

Role of Cushion: September saw 24.33% growth to UAE and 34.18% to China, boosting total exports 6.74% to $36.38 billion; sectors like electronics (58% growth) and iron ore (60%) benefited.

Diversification Strategy: India focused on market diversification, with China and UAE as alternatives; however, imports also rose (16.35% from UAE, 32.83% from China).

Background: In global trade wars, countries seek alternative markets; India's trade with China is imbalanced (large deficit), but recent growth tied to 'China Plus One' strategy.

Future Benefits: Commerce secretary noted industry maintained supply chains, showing exporters' competitiveness.

What are the causes of the rising trade deficit and its effects?

Factors of Increase: Imports up 16.6% to $68.53 billion, mainly gold (106.93% growth, $9.6 billion) and fertilizers (202% growth, $2.3 billion); Russian imports down 16.69%, but US up 11.78%.

Effects: Deficit at $31.15 billion pressures economy, affects foreign exchange reserves, and may weaken rupee.

Background: Trade deficit is export-import gap; India's large deficit due to oil and gold dependence, but recent surge from record high prices.

Solutions: FIEO suggested boosting domestic production in electronics and machinery for import substitution.

How can India cope with Trump Tariffs?

Negotiation Strategy: Indian negotiators in US seeking 'win-win' solutions; scope to increase energy imports ($12-15 billion) for diversification and reducing pressure.

Policy Steps: Ministry will analyze September-October data, understand sector-wise impacts; focus on diversification, like US oil imports.

Background: Tariffs part of trade wars where countries retaliate; India previously imposed reciprocal tariffs on US.

Long-term Effects: GTRI warned of billions in losses, but IMF projects India's 6.6% growth in 2025, better than global 3.2%.

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