How U.S. Tariff Escalation Is Reshaping India’s Trade Landscape
- ISCRO MSU
- Nov 20, 2025
- 8 min read
Written by Aryahi Pachpande (Research Lead), Niyathi Manivannan, Stephanie Bui, Ajitesh Venkatesh
Executive Summary:
U.S. tariffs on Indian goods have risen to as high as 50%, following the end of India’s GSP benefits and ongoing tensions over Russian oil imports
Key export sectors, especially textiles, gems and jewelry, metals, and seafood, have suffered major losses in competitiveness and export volume
The tariffs threaten millions of jobs, particularly among women and workers in labor-intensive MSME (Micro, Small, and Medium Enterprises) sectors across India
India has challenged the tariffs at the WTO and is considering retaliatory duties, highlighting deepening global trade divides and weakened enforcement mechanisms
Introduction
Over the past few years, trade between the U.S. and India has become tense. After the U.S. ended India’s Generalized System of Preferences (GSP) in 2019, many Indian exports lost duty-free access, raising costs for businesses. By 2025, the U.S. had increased tariffs on Indian steel, aluminum, and other goods to as high as 50%, partly because of India’s continued imports of Russian oil.
These tariff hikes hit key export sectors like textiles, gems, and auto parts, which employ millions of workers. Reports from KPMG and Indian trade groups estimate losses of $5–10 billion in exports since 2019, with small manufacturers hurt the most. As orders from U.S. buyers decline, factories in cities like Surat, Tiruppur, and Ludhiana are seeing slower production and layoffs. The situation shows how global trade policies can directly affect India’s economy and everyday workers.
WTO Policies
Recently, India has been at the center of a major trade confrontation with the United States.
The U.S. imposed a 50% tariff on many Indian exports. This includes a 25% “reciprocal” duty and an additional 25% penalty. The penalty was introduced partly in response to India’s continued imports of Russian oil (Kegler Brown, 2025). India has challenged the U.S. tariffs through the WTO, arguing that the measure wasn’t properly notified and violates WTO norms (Business Standard, 2025). At the same time, India has floated retaliatory duties targeting U.S. autos, steel, and aluminum under WTO rules permitting countermeasures when trade injury can be proven (Reuters, 2025). Amid these tensions, both countries have resumed negotiations, with reports saying India might cut tariffs on over half of U.S. imports (worth $23 billion) in exchange for relief from U.S. duties (Reuters, 2025). This ongoing standoff highlights the strain on the WTO’s enforcement system, as much of the resolution now depends on political bargaining rather than legal adjudication.
The recent trade clash between India and the U.S. has caused strong reactions from both sides. India decided to take the issue to the WTO, showing that it wants to defend its trade interests through international rules, even though the WTO’s influence has weakened in recent years (South China Morning Post, 2025). The U.S. claims the tariffs are justified to respond to unfair trade advantages and India’s continued import of Russian oil (The Guardian, 2025). Many global observers see this as a test of how major countries handle trade disputes in a time of shifting alliances and growing protectionism. Even with the tensions, both sides have started negotiating again, which shows they still value keeping a stable economic relationship (Reuters, 2025).
This conflict also raises bigger questions about unfair trade practices and how global trade rules are being tested. India has called the U.S. tariffs “discriminatory,” justifying they break WTO rules because they were imposed without proper notice or reasoning (The Indian Express, 2025).. In response, India has discussed placing retaliatory duties on U.S. goods, which is allowed under WTO rules if it can prove trade injury (Reuters, 2025). This situation also reflects a bigger Global South vs. Global North divide, where developing nations like India are pushing back against what they see as unfair treatment and economic pressure from wealthier countries. Overall, the growing tensions and shifting power dynamics between major economies are shaping trade decisions and challenging the WTO’s ability to uphold fairness in global trade. (The Indian Express, 2025).
U.S. tariffs on India have evolved from selective measures to broad-based duties that hit multiple sectors. A turning point came in June 2019 when the U.S. withdrew India’s Generalized System of Preferences (GSP) status, ending duty-free access for thousands of Indian products. This move especially affected labor-intensive goods like plastics, iron and steel articles, and certain agricultural items such as rice and spices, due to their higher sensitivity to tariff increases and global supply chain disruptions. In contrast, sectors like electrical machinery and vehicles were able to recover or even grow. The loss of GSP set the stage for broader tariff escalation, and by 2025, the U.S. had shifted toward using national security and reciprocal trade deficit measures to justify new duties. On April 2nd 2025, the U.S. announced tariffs under a declared “national emergency,” followed by revised rates in July and a 25% blanket tariff on Indian goods implemented in August. Just days later, an additional 25% penalty was applied in response to India’s continued Russian oil purchases, raising the effective tariff on many products to 50% (The Guardian, 2025).
Textile Market
One of the major industries that has been impacted is the textile industry. It has threatened millions of workers' jobs and caused supply chain disruptions. There are over 45 million employees in this industry, and many of them are women who live in the rural and semi-urban areas (Aljazeera, 2025).
Due to the tariffs, huge industry hubs such as Ludhiana, Tiruppur, Panipat, Surat, Coimbatore, and Bikaner are seeing huge declines in orders from big-name companies like GAP and Tommy Hilfiger. For example, Ludhiana, which has many yarn manufacturers, has seen a 30% decline in demand within two weeks of the tariffs being implemented. In addition to this, two-thirds of India’s knitwear is made in Tirrupur, and there has been a significant decrease in profits (Aljazeera, 2025). Cost have increased due to large numbers of buyers who have backed out of contracts leading to India becoming uncompetitive in this sector of products against Bangladesh and Vietnam, which have a 20% tariff, and China, which has a 30% tariff (Reuters, 2025).
It is extremely hard for businesses to face these issues because many buyers are pressuring Indian exporters to pay for a part of the tariffs themselves, which leads to reduced profits. This can eventually lead to businesses going bankrupt and facing uncertainties. Companies are exploring workarounds to stay in business. One aspect is that they are leaning towards laying off workers due to these thin profit margins to delay the loss of money in their respective companies. Another solution is that firms are trying to reroute supply chains through third countries so they can continue to stay in business with U.S. buyers (The Economic Times, 2025). However, this strategy is not the most feasible for small and medium-sized firms because it is expensive.
Overall, lots of measures such as diversifying markets and financial opportunities are trying to be implemented, but not much progress is being made. The textile industry is one of the biggest in India, and it is getting affected one way or the other. Companies are losing profits, and people are losing jobs, leading to an economic and social setback.
Other Sectors Impacted
The impact of these tariffs is felt across sectors that are central to India’s export profile. Places like gems, seafood, and jewelry are taking a big hit since these industries depend heavily on labor and exports. With higher U.S. tariffs and shifting trade rules, global buyers are becoming hesitant to invest in Indian factories, leading to slower manufacturing and a drop in foreign direct investment. This makes it harder for India to stay competitive in global markets, especially in sectors that rely on consistent overseas demand.
Metals, particularly steel and aluminum, were already subject to Section 232 tariffs imposed by Trump, which set duties of 25 percent on steel and 10 percent on aluminum. The addition of new tariffs has further reduced the competitiveness of Indian producers in the U.S. market. Gems and jewelry, a flagship sector where India is a global leader, now face sharply higher costs for American buyers, which threatens demand in a high-margin but price-sensitive industry. Agricultural goods such as rice and spices, once cushioned by GSP benefits, now face higher barriers at a time when they compete with low-cost suppliers from other countries. The automotive sector, especially auto parts, is also squeezed by higher tariffs, limiting opportunities for Indian manufacturers to expand into the U.S. supply chain. These shocks hit India’s MSME (Micro, Small, and Medium Enterprises) clusters especially hard. Nearly 45% of India’s exports come from MSMEs, and many are heavily dependent on U.S. buyers. With limited bargaining power and fragile supply chains, they are highly vulnerable to abrupt trade shifts (strtrade, 2025).
India’s seafood industry, particularly its shrimp exports, has taken a sharp hit. The U.S. is one of India’s biggest buyers of frozen shrimp, accounting for nearly 40% of total seafood exports, but higher import tariffs have pushed American buyers toward alternative suppliers like Ecuador and Vietnam (Reuters, 2025). Coastal processing hubs in Andhra Pradesh, Gujarat, and Kerala have reported significant order cancellations and factory slowdowns (The Hindu BusinessLine, 2025). Shrimp exports to the U.S. dropped over 20% year-on-year, threatening thousands of jobs in processing and aquaculture (Economic Times, 2025). Small-scale processors, who already operate on tight margins, are struggling the most to stay afloat.
The gems and jewelry sector, which employs over 5 million workers and contributes around 7% of India’s GDP, has also been hit hard. The U.S. is India’s top destination for polished diamonds and gold jewelry, but the new tariffs have raised retail prices for American buyers and led to a 15–18% drop in export volume over recent months (Times of India, 2025). Business Standard reports that Indian jewelers are now losing market share to Thailand and Vietnam, which have favorable trade terms with the U.S. (Business Standard, 2025).
Labor Market
The Indian industry is facing significant challenges due to multiple factors, like economic slowdown and global geopolitical tensions. These factors lead to a major projected decline in exports and overall gross income. As a result, the Indian economy is expected to lose billions of dollars. This strain affects not only major industries, such as oil, manufacturing, and automotive, but also places additional pressure on smaller sectors like footwear, food, and jewelry. Anticipated tariffs of 50-62% worsen these challenges, making India less attractive to international buyers. The loss of the GSP in 2019 further demonstrates how tariffs can harm both the economy and the domestic job market. Over 50,000 small exporters now face job insecurity and higher costs. Although some have adjusted their supply chains or reduced costs, consumer-focused businesses struggle to cut external costs without affecting staff. An estimated 2 million jobs are at risk due to USA-imposed tariffs, with South India, known for local farming and handcrafted textiles, likely to be especially affected (Aljazeera, 2025).
Conclusion
India currently faces significant labor and trade challenges, mainly due to rising US manufacturing tariffs of 50-60%. These tariffs not only impact Indian exports but also threaten job security, especially in labor-intensive sectors like textiles and jewelry. Small and medium businesses, which are crucial to India's export ecosystem, are the most affected. Factors such as limited supply chains, high production costs, and layoffs add to the tariff-related difficulties for local businesses.
The decline of India's textile industry is especially pronounced in regions like Tirupur, Ludhiana, and Surat, highlighting a nationwide trend of narrowing profit margins and job losses. Women and informal workers in these regions are particularly vulnerable. Additional sectors, including rice, spices, and gems, are also under stress, forcing many manufacturing businesses into a defensive position.
Ultimately, India's current situation demonstrates how trade policy decisions by major powers can create significant social consequences. Moving forward, India must balance diplomatic negotiations with efforts to protect industries and workers, who are central to the nation's economic growth (Economic Times, 2025).