Trump imposes 25% tariff: Textiles, jewellery, pharma, electronics face threat; India Inc hoping for relief in trade deal

US President President Donald Trump (File image)

In a significant escalation of trade tensions, US President Donald Trump announced a 25 percent tariff on Indian imports and an additional penalty effective from August 1, 2025. The move, part of a broader shift toward aggressive protectionist trade policies, is set to have wide-reaching ramifications for India’s export economy.

The 25 percent tariff is higher than the tariffs for countries that have reached some agreement with the US on tariffs and trade barriers such as European Union (15 percent) and UK (10 percent) and some of the south east Asian nations such as Indonesia (19 percent), Philippines (20 percent) and Vietnam (20 percent), which compete with India.

The Indian tariff rate is less than the current 30 percent rate for China. The US and China continue to be engaged in negotiations over tariffs. Malaysia currently has a similar 25 percent tariff rate.

Sectors to be hit: Electronics, Pharma, Textiles, Jewellery

Indian industries facing the sharpest impact are those heavily reliant on the US market and vulnerable to short-term shifts in pricing competitiveness. These include electronics, automobile and auto components, pharma, textiles and gems and jewellery industries.

The United States accounts for nearly 28% of India's total exports in textiles and apparels segment. With cheaper competitors like Bangladesh and Vietnam vying for the same markets, India’s increased tariffs could lead to substantial displacement in key product categories such as garments, linens, and towels

"There is no chance to absorb the duty because of the margins in these businesses... none of the brands give you that kind of a margin. So, what will eventually happen is that the consumer in the US will end up paying. There is also a little bit of a discussion..EU also negotiated their tariffs down to 15 per cent. We all know that the rates and the policies keep changing by the hour as it moves. We are not 100% certain that this is final, or if it continues to be just a negotiating tactic. I think if these duties come, eventually the consumers in the US will have to pay for it," said Raymond CFO Amit Agarwal told Moneycontrol

The gems and jewellery industry too faces huge risk as the US market accounts for nearly a third of its exports.

“The Indian gem and jewellery sector, in particular, stands to be severely impacted. The United States is our single largest market, accounting for over $10 billion in exports—nearly 30% of our industry’s total global trade. A blanket tariff of this magnitude will inflate costs, delay shipments, distort pricing, and place immense pressure on every part of the value chain—from small karigars to large manufacturers,” said Kirit Bhansali, Chairman, Gem and Jewellery Export Promotion Council.

“We urge the U.S. administration to reconsider, and call on both governments to engage in constructive dialogue that safeguards bilateral trade and protects the millions of jobs that depend on it on both sides,” the industry body’s Chairman added.

The US is the biggest export market for Indian pharma exports. Experts said that while the current 25 percent tariff won’t impact the pharma sector, the commentary coming from the Trump administration highlights significant risks for the sector in the coming days.

“Pharmaceuticals are currently not part of the 25% tariffs announced by the US, which is a big relief for India’s pharma exporters. However, the strong language used by President Trump and ongoing investigations into drug imports mean that the risk is not over yet. Indian pharma companies should stay prepared for possible changes, especially if sector-specific duties are introduced later,” said Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat.

India’s biggest export to the US is electrical machinery including smartphones, which recorded exports worth $12 billion in 2024, according to a recent report by Barclays. The tariff announcement is expected to cause disruptions for this sector too.

Ashok Chandak, President of IESA & SEMI India, said that the imposition of a 25% tariff by the U.S. is a short-term challenge for the Indian electronics industry that could disrupt supply chains and dent price competitiveness.

"India does not have any major advantage compared to other Asian countries anymore if 25% tariff above baseline 10% is continued. However, it also underlines the urgency for India’s electronics sector to diversify export markets, deepen domestic markets , develop India brands and products, and move up the value chain to reduce dependency on price-sensitive, tariff-exposed exports. As india donot make much semiconductors , it won't be affected in short term. We hope that the ongoing final trade negotiations will create some positive outcome in next few weeks or months as both countries may want to find good balance," he said.

Impact on GDP

Experts caution that while the 25 percent tariff is a negative development for India, the focus now is on closing the trade deal with the US, which, if delayed further, could have an impact on FY26 GDP numbers.

“If no deal is signed by September-October, we see a downside to full year GDP growth estimate for India by 20 basis points,” said Garima Kapoor, Economist and Executive Vice President, Elara Capital

Kapoor added that the 25% tariff rate is certainly a negative development as it compares to lower rates for peers such as Vietnam, Indonesia and Philippines which compete with India in a similar category of labour-intensive products and electronic goods.

“The exact details of the tariffs on the exempted items such as pharma and the ones that were charged at a differential rate such as iron, steel and auto is unknown as of now, but inclusion of pharma into tariffs should be incremental negative for India’s exports as US accounts for more than 30% of India’s pharma exports,” said Kapoor.

Aditi Nayar, Chief Economist at ICRA added that downside impact on Indian GDP will depend on the proposed penalties.

"When the US had initially imposed tariffs, we had lowered our forecast of India's GDP expansion to 6.2% for FY2026, presuming a tepid rise in exports and a delay in private capex. The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India's GDP growth. The extent of the downside will depend on the size of the penalties imposed,” said Nayar.

Focus now on trade deal

To be sure, experts added that while the 25 percent tariff is a negative development, a rushed deal with the US to avoid tariffs could have resulted in a more long lasting impact for the Indian economy.

“On the positive side, it is pertinent to note that any hotchpotch deal which would have compelled India to give concessions to its agriculture and dairy sector may have had much deeper ramifications politically, socially, and eventually on livelihoods. A well negotiated deal that addresses all aspects of trade, investment and tariff and non-tariff barriers by September or October 2025 is likely to yield long term benefits than a hurried deal,” said Elara Capital’s Kapoor.

Grant Thornton Bharat’s Mishra added that these tariffs are likely to be in place only for a short period, as both countries are expected to fast-track discussions for a Bilateral Trade Agreement. “A balanced and stable trade deal will be key to protecting long-term interests of the sector,” he said.