Trump’s 50% tariff on India puts $35 billion in exports at risk, may shave off 1% GDP growth: UBS economist

UBS sees inflation at around 3 percent in 2025-26, aided by good monsoons, lower crude prices, and cheaper imports from China.

US President Donald Trump’s decision to double tariffs on Indian goods to 50 percent could put $30-35 billion worth of exports to the United States at risk and cost the economy almost a full percentage point of GDP growth over the next two years, UBS Chief India Economist Tanvee Gupta Jain told The Indian Express.

India exported $87.3 billion in goods to the US in 2024, earning a trade surplus of $45.8 billion. Jain said the new duties, a 25 percent hike effective immediately and another 25 percent from August 27, could shave 35 basis points off GDP in 2025-26 and 60 basis points in 2026-27.

Tariff exemptions and ongoing talks

Some sectors, such as pharmaceuticals and smartphones, remain exempt under Section 232 investigations, accounting for about $24 billion or 30 percent of India’s exports to the US. That leaves around $56 billion exposed to higher duties, of which $30-35 billion is at immediate risk, according to Jain.

The 21-day gap before the second tranche of tariffs takes effect offers a small negotiation window. Media reports cited by The Indian Express suggest a US trade delegation will visit India in the last week of August, just before the August 27 deadline.

Agriculture and dairy as sticking points

Jain told The Indian Express that India may, like Vietnam, Indonesia, the Philippines, and Japan, agree to zero tariffs on US goods and increase purchases of US energy and defence equipment to reduce its trade surplus. But she flagged agriculture and dairy as “key hurdles” because of the risk to small farmers’ livelihoods.

India’s dairy sector contributes 3 percent to nominal GVA and supports over 80 million farmers. “Opening up agriculture and dairy to US competition could hit low-value-added sectors that are critical for rural livelihoods,” Jain said.

Russian oil purchases and inflation

On whether India could cut Russian oil imports, a major US concern, without disrupting prices and inflation, Jain said India is now importing 36 percent of its crude from Russia, up from just 2 percent before the Ukraine war.

UBS oil analysts, cited by The Indian Express, say Indian refineries are optimised for Russian Ural crude, but the price advantage over Brent has narrowed to $2-3 per barrel. “India may not lose much if it shifts away from Russian oil — the savings are now only around $2 billion,” Jain noted, adding that crude prices could see a temporary spike but OPEC’s spare capacity may cap the rise.

RBI rate cut on the cards

With the RBI leaving rates unchanged in its latest policy, Jain now expects a 25 basis point cut in October, citing tariff-driven growth risks and a softer inflation outlook. UBS sees inflation at around 3 percent in 2025-26, aided by good monsoons, lower crude prices, and cheaper imports from China.

Growth forecast and consumption trends

While the RBI has kept its 2025-26 GDP growth forecast at 6.5 percent, Jain told The Indian Express this may not fully account for the latest tariff hike, which was announced after the MPC meeting.

UBS’ India Composite Economic Indicator shows economic momentum softening in May, with rural activity picking up but urban demand weakening. Jain warned that while household consumption could support growth in 2025-26, a broad-based recovery is unlikely soon, especially with the Eighth Pay Commission now expected only in early 2027.