Impact of Trump’s Tariffs on India’s Trade: How Key Sectors Could be Affected

Key Indian industries impacted by Trump’s trade tariffs and their future outlook

The United States Of America, under President Donald Trump, has come into power and has taken a strong stance on trade protectionism, which has led to new tariffs that could affect India. As the U.S. imposes these tariffs to address trade imbalances, there could be a high probability that India may face more costs on exports to the USA. In this blog let us look at the impact of Trump’s tariffs on India’s trade.

Understanding USA- India Trade Landscape

Looking at the US-India trade relations, mutual trade for FY24 was reported at 118.2 billion dollars during FY24. Moreover, India registered a trade surplus of 36.8 billion dollars against the US. A trade surplus is when exports exceed imports. This means more exports than imports, and consequently, a trade balance is said to be positive.

Out of the total trade,

• Indian exports to America stood at 77.5 billion dollars .
• American exports to India stood at 40.7 billion dollars.

Sectors That Could be Impacted

U.S. policy shifts and a potential trade war implications for India could have major problems affecting key industries. The sectors that could be impacted are as follows:

1. Steel Industry:

Recently in the month of February 2025, Trump imposed 25% tariffs on all steel and aluminium imports. India had made exports of 777 billion dollars to the U.S. in the first 11 months of the year 2024. This could impact India’s aluminium exports to the U.S., specifically the export market for this metal.

2. IT Sector:

Stricter H-1B visa rules could make it harder for Indian IT professionals to work in the U.S., affecting Indian IT companies that rely on these jobs. At the same time, if the U.S. imposes higher taxes on IT services from India, it could make these companies less competitive by increasing costs for American clients. This may lead to fewer contracts and reduced profits for India’s IT sector.

3. Auto Sector:

The auto industry in India could face challenges if Trump raises tariffs or import taxes. This would impact manufacturers that depend on U.S. parts or export a large number of vehicles. A stronger dollar could also make imports costlier, increasing production expenses. These factors may put pressure on the Indian automobile sector.

4. Renewable Energy Sector:

Trump is more focused on fossil fuels than renewable energy, which could reduce demand for green technologies and slow global investments in renewables. Indian companies linked to international renewable projects may struggle to grow if the world shifts more toward fossil fuel investments, pushing renewable energy into the background. In his first term, he implemented a 30% tariff on imported solar panels in 2018.

How will the markets and the currency react?

Indian markets have suffered at the hands of the latest U.S. tariffs, raising uncertainty among investors. As the trade relations between India and the U.S. continue to generate concerns, the stock markets are facing a downfall.

The trade tensions have raised concerns that costs will increase following the imposition of these tariffs, potentially affecting businesses that import goods. Thus, the market’s aggregate confidence is affected by the tariffs. Let us see the tariff effects on Indian exports:

• Indian Markets: The Indian equity markets have faced a lot of pressure due to the recent tariffs and overall economic uncertainty. The impact has been more severe on small and mid-cap stocks, which have seen major corrections. The small-cap index has dropped by around 22% , while the mid-cap index is down by 20%.
• Rupee Depreciation: The rupee has taken the biggest hit. It has depreciated to a record low of 87.95 against the U.S. dollar in the month of February 2025, as investors panic and capital keeps on flowing out of the Indian market. More foreign investors are taking their money off the markets, also leading to a fall in the market.

India’s Response to US Tariffs

The Prime Minister of India plans a visit to the United States on February 13th. During this visit, both countries are expected to have discussions about lowering trade taxes to help reduce recent disagreements about trade between them.

What can the investors do?

Recently, the market has fallen by 3%-5% in past one week, which is caused by trade tensions and Trump’s tariffs on India, has left investors in panic. To reduce risk, investors can adopt various strategies that help them navigate market volatility and protect their investments in the following ways:

• Diversify Investments: Instead of focusing only on one market, investors could explore opportunities in other markets. This will help to reduce risk.
• Other Assets: Investors can invest in assets like gold or debt instruments. Gold could act as a hedge when the equity markets are falling whereas in the case of debt securities, the returns are fixed.
• Monitor Government Policies: Investors can keep track of India’s trade negotiations and potential policy changes that will happen between both countries. This can help to stay updated and informed about the market movements.
• Consider U.S. and India Trade Linked Companies: Investors may choose businesses that benefit from increased India and U.S. cooperation, such as defence, energy, and technology firms, which could offer good investment opportunities.

Conclusion

India is facing growing challenges due to the new trade tariffs imposed by the U.S., which are putting pressure on key industries and affecting overall market confidence. These tariffs have made it more expensive for Indian businesses to export goods. The Indian government is looking to ease the situation by negotiating lower trade taxes and boosting imports from the U.S. As global trade changes, it is important to stay updated and make smart financial choices to handle uncertain times.

DISCLAIMER: This article is not meant to be giving financial advice. Please seek a registered financial advisor for any investments.