Tariff Shock May Sting Exporters, But Economists Say India’s Manufacturing Appeal Remains Robust

Economists and trade experts have cautioned that while President Donald Trump’s announcement of a 25% tariff on Indian exports, effective August 1, might reduce profit margins for exporters or delay investment shifts, India’s long-term attractiveness for global manufacturing remains intact. India's labour advantage, favourable demographics, and government policy frameworks continue to support its strategic appeal.

The tariff could lead to an estimated $16–18 billion in additional duties on Indian exports based on FY25 trade volume. Sectors likely to face the greatest pressure include jewellery, textiles, mobile phones and industrial machinery, given their high exposure to U.S. markets.

Tariffs Could Hurt Margins, But Policy Support May Cushion Impact

Sujit Kumar, Chief Economist at NABFID, noted that global manufacturers may experience margin erosion, especially for components sensitive to price changes. However, this effect may be softened through government action—such as reducing logistics costs and offering targeted fiscal incentives for labour-intensive export sectors.

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India’s Long-Term Manufacturing Appeal Remains Strong

Charan Singh, CEO of the EGROW Foundation, emphasised that the tariffs may serve as a temporary disruption rather than a structural deterrent. India’s core strengths—skilled, disciplined workforce; competitive labour costs; and supportive industrial policies—are likely to continue drawing investment, particularly from firms adopting a ‘China+1’ global strategy. These benefits are expected to outweigh short-term shocks. 

Experts also highlighted that swift policy responses—such as trade diversification, reduced trade barriers, and export brand-building—could minimise the impact of the tariff regime. India is also promoting its regional value chains through targeted schemes and trade outreach to mitigate reliance on single markets. 

Conclusion

While the newly imposed 25% tariff poses immediate challenges for exporters and may narrow margins in key export sectors, economists remain confident in India’s long-term manufacturing potential. Policies aimed at reducing cost burdens, diversifying trade destinations, and enhancing export resilience could preserve India’s appeal as a cost-efficient and skilled global production hub.