“Trump’s Tariffs” have been in news since he took oath as the President of the USA in Feb 2025 and since then the stock market seems to be more dependent on Trump than on ‘technicals’ or ‘fundamentals’. In this article, I will try to cover everything about tariffs, right from the day it was introduced to the current scenario. We will also look at the sectors, and more specifically the companies/stocks that are hit hard.
To begin with, let’s understand what actually a tariff is: it’s a tax that the government puts on goods coming from another country. Apart from revenue augmentation, the government uses tariffs to protect local businesses (making foreign goods expensive). And many a times it is used to create a political or economic pressure to influence other countries’ policies.
Trade between nations is governed by the WTO (World Trade Organisation) Rules with both India and US being the founding members of the WTO. Under normal WTO Rules, the US would have to charge the same tariffs on Indian goods as it does for other WTO members. However, this hasn’t been the case. While WTO was formed in 1995, India (and many developing economies) have been trading with the US under Generalised System of Preferences (GSP), a trade program started in 1976 under the Trade Act of 1974. GSP is allowed under WTO rules as a special exception. The goal was to promote economic growth in developing countries by removing tariffs on certain products. India was the largest beneficiary till 2019 with more than 3500 products entering duty free to the US market.
Trade between India and the US kept growing with a significant rise in exports during 2000s, especially of engineered goods, chemicals and textiles. Our exporters saved millions of dollars in duties, annually. However, around 2017, US industries began complaining about the trade barriers in India. Tariffs on US imports were significantly high on various goods, including the Harley Davidson bikes, medical devices and certain agricultural products. Later in 2018, during Trump’s first term, he aggressively targeted the trade imbalances and India was criticised for high import tariff on U.S goods, price caps on medical devices and restrictions in e-commerce and dairy sector. These ultimately led to termination of India’s GSP status in 2019 and the standard WTO tariffs on indian goods came into effect. This was a major blow to the Indian exporters across various sectors - auto parts, industrial machinery, chemicals and plastics, jewellery and precious stones, textiles, handicrafts and leather goods.
Under the GSP status, average U.S tariffs on Indian goods was around 2-4% whereas average Indian tariffs on U.S goods was 12-17% with agricultural goods having tariffs ranging between 30-40% and cars having 60-100%. In contrast, indian Pharmaceuticals and IT companies had to pay 0% tariffs to the USA; import duties were comparatively high on textiles (8-12%), jewellery and leather goods (5-8%) to protect USA’s domestic market.
Trump’s second term - uncertainty prevails
Soon after swearing in ceremony in February 2025, Trump reaffirmed his commitment to impose tariffs. In early March, Trump announced, and later imposed 25% tariffs on steel and aluminium. This was followed by a universal 10% tariffs on all imports effective 5 April 2025 and higher reciprocal tariffs for select countries, including India. However, on 9 April 2025 reciprocal tariffs were delayed for 90 days.
While both countries were still in talks for bilateral agreement, Trump, on 30 July 2025 announced 25% reciprocal tariffs on Indian imports effective from 1 August 2025. Exemptions for IT, Pharmaceutical and Electronics sector remained unchanged.
He didn’t stop there, on 6 August 2025, he further increased tariffs by 25% bringing the total duty on many indian imports to 50%. The reason - India’s continued purchase of Russian oil. The additional tariffs will come into effect from 27 August 2025. The hopes of finalising bilateral trade agreement, anytime soon, shattered as US cancelled the 6th round of trade talks scheduled for late August.
What’s next?
Based on the series of events, there are five possibilities now.
Prolonged 50% tariffs and no trade deal
This will lead to continued pressure on exporters and businesses will be forced to downsize or shift production. Domestic unemployment may rise.
Negotiations or temporary waivers
Depending on its type and duration it may provide a breathing room and stabilise exports.
Diversification to alternative markets
A challenging yet inevitable move, Indian exporters will shift their focus to European Union, Middle East or ASEAN. The revenue recovery in this case will be slower and may be less lucrative.
Domestic rescue and tax reforms
Indian government may come up with stimulus packages, tax reliefs and consumption boosting reforms. PM Modi in his independence day speech has already hinted towards GST rationalisation.
Geopolitical realignment
If India and US do not arrive at a trade deal soon, we may see deepening partnership with BRICS nations and the European Union. This would have a long term impact on the Indian as well as the global economy.
Sectors on stake
Textiles and Apparel - Facing the most severe strain
Stocks - Gokaldas Exports, Indo Count, Welspun Living, KPR Mill, and Pearl Global
Gold and Jewellery - Heavy exposure to the U.S. market
Stocks - Titan Company, Kalyan Jewellers, PC Jeweller, Rajesh Exports, Senco Gold, P.N. Gadgil Jewellers, Renaissance Global
Auto components - Facing a mixed outlook
Stocks - Bharat Forge, Sona BLW
Trade conflicts aren’t new, however, prior to 2018, these were mostly resolved through WTO channels or bilateral talks. There were no large scale tariff escalations. It is a challenging situation for our economy as in the absence of a favourable trade deal our GDP may see a decline by 0.2-0.6% (as per investment banks and ratings & research agencies). There will be a slowdown in the already ‘not so well’ economy leading to lower earnings for corporates and higher unemployment.
