U.S. Imposes 25% Tariff on India: Sectoral Impacts and Who Bears the Greater Cost

On July 30, 2025, U.S. President Donald Trump announced a 25% tariff on Indian exports, effective August 1, 2025, coupled with an unspecified penalty tied to India’s trade with Russia for oil and defence equipment. This move, aimed at addressing the U.S.’s $45.8 billion trade deficit with India and perceived non-tariff barriers, marks a significant escalation in trade tensions. The tariffs target a wide range of Indian goods, sparing only pharmaceuticals, semiconductors, and critical minerals. This article examines the impact on key Indian sectors, the ripple effects on both economies, and concludes whether India or the U.S. will face the greater economic burden.

Sectoral Impacts in India:

Electronics and Solar

India’s electronics sector, particularly smartphone assembly (e.g., Apple iPhones), faces severe pricing and volume pressure due to the 25% tariff. With $14 billion in electronics exports to the U.S., the sector operates on thin margins, and higher costs could reduce demand, threatening India’s manufacturing ambitions. However, a two-week reprieve for certain technology products offers temporary relief as bilateral talks continue.

Gems and Jewellery

The gems and jewellery sector, with over $10 billion in annual U.S. exports, is highly vulnerable. The tariff risks inflating costs, delaying shipments, and disrupting supply chains, potentially endangering jobs and market share. India’s Gem and Jewellery Export Promotion Council called the tariff a “deeply concerning development,” highlighting its threat to the entire value chain.

Textiles and Apparel

Textiles, contributing $9.6 billion to U.S. exports, face a mixed outlook. While India could gain in low-cost categories if tariffs on competitors like China (125%) or Vietnam (20%) remain high, its share in high-margin fashion fabrics may decline. Long-term, the sector faces structural risks as it competes for investment and industrialisation.

Automobiles and Components

The auto sector, including companies like Tata Motors and Sona BLW Precision Forgings, will face headwinds from the 25% tariff on vehicles and components. Tata Motors’ Jaguar Land Rover, which derives 15% of its revenue from the U.S., and Sona BLW (40-45% U.S. revenue) risk losing pricing competitiveness. However, India’s low export volume in this sector limits the overall impact.

Pharmaceuticals (Exempt)

The pharmaceutical sector, a major export with $9 billion in U.S. sales, remains exempt, providing significant relief. Indian drugmakers’ shares rose nearly 5% post-announcement, reflecting market confidence. This exemption reinforces India’s critical role in supplying affordable generic medicines to the U.S. healthcare system.

Agriculture and Dairy

Agriculture, particularly dairy ($181.49 million in exports), faces severe impacts with tariff differentials up to 38.23%, making products like ghee and milk powder costlier. Marine exports ($2.58 billion) and processed foods ($1.03 billion) will see tariff hikes of 27.83% and 24.99%, respectively, reducing competitiveness.

Oil Refining

Indian refiners, reliant on Russian crude for 37% of imports, face potential cost increases if penalties for Russia trade materialize. Companies like Reliance Industries, Indian Oil, and Bharat Petroleum could see profitability squeezed, impacting domestic fuel prices and inflation.

Economic Ripple Effects

For India

India’s $87 billion export relationship with the U.S., its largest trading partner, is at stake. The tariffs could shave 0.5 percentage points off India’s GDP growth, with estimates suggesting a 30-basis-point hit if sustained. Sectors with high U.S. exposure (electronics, jewellery, textiles, autos) face immediate disruption, while job losses in labour-intensive sectors like jewellery and textiles are a concern. A weaker rupee (potentially falling from 85 to 108 against the dollar) could offset some export losses but raise import costs, fueling inflation.

However, India’s economy is relatively domestically driven, with U.S. exports accounting for only 18% of total merchandise exports and 1.1% of GDP in vulnerable sectors. Strategic responses, such as diversifying markets (EU, ASEAN), leveraging production-linked incentives, and negotiating a trade deal, could mitigate impacts. India’s lower tariff rate compared to China (125%) or Vietnam (20%) provides a competitive edge, potentially attracting supply chain shifts.

For the U.S.

The tariffs aim to boost domestic production and reduce the trade deficit but risk higher consumer prices and supply chain disruptions. A 25% tariff on Indian goods could raise U.S. import prices by 0.2-0.3 percentage points, contributing to inflation. Sectors like electronics (e.g., smartphones) and jewellery will see costlier products, potentially reducing consumer demand. The exemption of pharmaceuticals avoids immediate healthcare cost spikes, but any future tariffs here could significantly impact U.S. consumers reliant on Indian generics.

U.S. businesses face risks as India considers retaliatory measures, such as slashing tariffs on $23 billion of U.S. imports or imposing barriers in sensitive sectors like agriculture. A broader trade war could disrupt global supply chains, with U.S. retailers warning of price increases and shortages. The U.S.’s higher tariffs on other nations (e.g., 125% on China) amplify global trade tensions, potentially isolating the U.S. economically.

Who Bears the Greater Burden?

While both nations face economic challenges, India is likely to bear the greater immediate burden. The tariffs directly target 10% of India’s exports, impacting high-growth sectors critical to its industrialization goals. The potential GDP hit, job losses in labour-intensive industries, and inflationary pressures from a weaker rupee pose significant risks to India’s economy, which is still navigating post-COVID recovery and global headwinds. India’s reliance on U.S. markets for key sectors like electronics and jewellery amplifies the impact, and the unspecified penalty for Russia trade adds uncertainty.

The U.S., by contrast, faces inflationary pressures and consumer price hikes but benefits from a stronger dollar and a more diversified import base. The U.S. economy, less reliant on Indian goods than India is on U.S. markets, can absorb disruptions better, especially with exemptions for critical imports like pharmaceuticals. However, long-term risks for the U.S. include retaliatory tariffs, supply chain shifts to competitors like Vietnam, and global trade isolation, which could erode its economic leverage.

Conclusion

The U.S.’s 25% tariff on India, effective August 1, 2025, will significantly disrupt Indian exports, particularly in electronics, gems and jewellery, textiles, autos, and agriculture, with potential GDP and job losses. While India’s domestic-driven economy and strategic responses may cushion some impacts, the immediate economic strain is substantial. The U.S. faces inflation and supply chain risks but is better positioned to weather the storm due to its economic size and import diversification. Thus, India will likely face the greater short-term economic cost, though both nations risk long-term trade disruptions if negotiations fail. Ongoing bilateral talks, set to resume in August, offer hope for a mutually beneficial resolution.