The United States on July 31 released an executive order on modifications to reciprocal tariffs, formalising a 25-percent duty on Indian goods over and above the Most Favoured Nation (MFN) rates.
Although these higher rates for Indian goods are effective from August 1, as per the order, they will not be applicable for those shipments already in transit before August 7 and are scheduled to arrive by October 5.
This means that most of the Indian goods which are in transit can continue paying duties at the earlier rates of 10-percent, and will face Trump's 25-percent after October 5.
The executive order mentions that tariffs may be reduced once countries conclude a deal with the US.
India and US continue to negotiate the terms of a Bilateral Trade Agreement (BTA), which is aimed to be concluded by Fall of this year.
The US has also laid down rules that define goods that are rerouted or trans-shipped to evade higher duties, and will face a 40-percent levy in addition to base taxes.
This means, if an Indian-origin good is routed through a third country, it may face even higher tariffs.
Indian exports to the US stood at $86.51 billion in FY25.
According to GTRI estimates, India’s goods exports in FY26 may come down by 30-percent to $60.6 billion due to fresh tariffs imposed by the US.
Engineering goods, gems and jewellery, pharmaceuticals, ready-made garments and chemicals are some of India's top outbound shipments to America.
These new tariffs are expected to hit India's labour-intensive exports the most, notably textiles, gems and jewellery, as well as leather. The impact will likely amount to almost $20 billion in FY26.
However, there are exemptions for Indian exports. These include pharmaceuticals, Active Pharmaceutical Ingredients (APIs), electronics and ICT goods (semiconductors, smartphones, and computers) and energy products (crude oil, LNG, refined fuels, electricity, coal).
Therefore, if an Indian export falls under one of these sectors, it is not subject to the 25-percent tariff and continues to enjoy zero-duties.
This roughly amounts to around $30 billion in Indian exports to the US, which will fall under these exempted categories. But, this treatment is at risk since Trump's administration has threatened increasing duties on foreign-made drugs and electronics in the near-future.
However, steel and aluminium, and certain automobiles and auto parts will continue to face 50-percent and 25-percent sectoral tariffs, respectively as has been the case since April.
India's top export to the US is engineering goods that heavily relies on steel and aluminium products, worth almost $20 billion in FY25.
To be sure, while Trump had announced a penalty on India over and above the tariffs for purchasing Russian arms and energy, the nature and quantum of that additional penalty is yet to specified.
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