US tariffs: No direct hit but Indian IT sector braces for second-order stress

How Trump's new tariffs can harm Americans more than they know

The $280-billion domestic information technology (IT) industry may not be directly impacted by the recent round of additional tariffs and penalties imposed by the US on Indian exports. However, analysts warn of second-order effects that could affect client sentiment, discretionary spending, and the flow of large deals.

On August 6, the US President Donald Trump's administration announced the imposition of additional tariffs and penalties on a range of Indian goods, citing concerns over New Delhi's continued purchase of Russian crude.

“The recently announced US tariffs on Indian exports do not cover IT, BPO, or digital services, consistent with historical precedent, as services are intangible and not subject to traditional trade barriers,” said Rohitashwa Aggarwal, partner at Everest Group. “However, there may be second-order effects worth watching.”

Clients in sectors directly affected by the tariffs may face cost pressure, which could trickle down into IT budgets, particularly for discretionary or transformation-led projects. A potential rise in hardware or infrastructure import costs could also modestly raise operating costs for offshore delivery centres, Aggarwal added.

Also, read: Shrinking IT deals dealt another blow by Donald Trump’s tariff war

Moreover, the bigger challenge may come from perceptions.

“Boardrooms and media often conflate goods and services, prompting unnecessary concern,” Aggarwal said.

If India responds with tighter digital or tax regulations, it could introduce real friction for multinationals operating Global Capability Centres (GCCs) in India or the movement of talent across India-based service providers.

Other analysts echoed a similar sentiment, cautioning that optics could make clients more circumspect. “Not directly, but there will be a second-order impact. Clients will be concerned about optics. They will be shy of any public announcements of large deals and GCCs,” Pareekh Jain, founder of EIIR, said.

The Indian IT sector has been reeling under pressure from distressed discretionary spending. In the third quarter of fiscal 2025, the sector was showing signs of a discretionary spending revival, but come January 2025, Trump’s tariff announcement derailed that shift.

Also, read: Indian IT firms brace for delayed discretionary spending revival amid Trump tariff, recession fears

Namratha Darshan, principal analyst at ISG, said that while there’s no immediate impact on the IT services market, tighter or delayed client spending could become an issue. “Client spending might get tighter and slower, and that could have a potential impact on services,” she told Moneycontrol.

While the sector may not face a direct blow, sourcing and GCC leaders have been advised to revalidate their exposure, keep their messaging aligned, and remain alert to downstream ripple effects.

Also, read: Rattled to the core: Indian IT on shaky wicket after Trump tariffs

Further, the US government's IT spending being cut by the Department of Government Efficiency (DOGE) has only made the situation worse, with companies like Accenture already feeling the heat.