India Navigates Tariff Tensions: Exporters Brace for US Uncertainty Amid Broader Trade Threats

India Navigates Tariff Tensions: Exporters Brace for US Uncertainty Amid Broader Trade Threats​

India successfully navigated a potential 12.5 percent tariff escalation on July 23, settling into a set 10 percent US duty rate. While this immediate relief from sharper punitive duties has been noted, businesses across key sectors remain highly anxious regarding the broader trajectory of Washington’s trade policies. The current 10 percent additional duty applies over and above existing Most-Favoured-Nation (MFN) tariff rates for specific products.

Lingering Uncertainty Over Future US Trade Actions​

The shift to a Section 301 framework, following the expiration of an earlier Section 122 tariff authority, has not alleviated concerns among Indian exporters. EEPC Chairman Pankaj Chadha noted that the move merely changes the landscape: “We had 10 percent under Section 122, now we have it under Section 301.”

Exporters are keenly awaiting clarity on several future actions being reviewed by USTR. These include a review of excess capacity and potential measures linked to countries continuing purchases of Russian oil. The excess capacity review, which began in March under Section 301 and covers economies including India, examines whether production practices and state support lead to market distortions.

The possibility of intensified pressure remains high due to the Lindsey Graham-linked Russia sanctions proposal. This proposal could impose tariffs up to 100 percent on countries that persist in buying Russian oil.

Long-Term Tariff Risk Looms Over Pharmaceuticals​

The pharmaceutical sector, despite not being directly affected by the recent forced labour related tariffs, faces a significant long-term tariff risk. The Trump administration has proposed imposing a 100 percent tariff on imported generic medicines starting August 2028. This rate is slated to rise to 200 percent from August 2029.

These punitive actions are intended as part of efforts to encourage greater pharmaceutical manufacturing within the United States. Against this volatile backdrop, exporters are hoping that ongoing bilateral trade negotiations can provide relief. Chadha stated that a future 10 percent excess duty could potentially be mitigated by India-US trade deals.

Gems and Jewellery Sector Faces Margin Squeeze​

The gems and jewellery industry has voiced serious concerns regarding the immediate tariff imposition. Rajesh Rokde, chairman of the All India Gem and Jewellery Domestic Council (GJC), stated that the 10 percent Section 301 tariff will create challenges for Indian exporters, diminishing their price competitiveness in a major market.

Industry representatives urged the Government of India to engage promptly with US authorities seeking relief or exemptions from this duty. Sabyasachi Ray of GJEPC highlighted the unfair treatment faced by cut and polished diamonds. He argued that these items should be classified as raw materials rather than finished jewellery.

The industry feared losing a crucial advantage compared to rival diamond centres, noting that while jewellery exporters might share the tariff burden—perhaps 5 percent each—cut and polished diamonds cannot sustain this measure alone. It is important to note that Annexure 2, part of the Section 301 action, identifies various items exempted from the additional duty, including certain inputs like industrial chemicals and petroleum-related goods.

Textile Exporters Fear Discriminatory Trade Actions​

The textile sector has identified the US tariff action as a significant threat, worrying not just about the increased cost but also about losing sourcing orders to competing nations. CITI Chairman Ashwin Chandran stressed that the lack of an expiry date on the forced labour tariffs creates reputational risk for Indian apparel and textile exports.

A major concern highlighted by exporters is the preferential treatment being offered to some rival economies. The US plans to establish Tariff Rate Quotas (TRQs) for Bangladesh, Cambodia, Indonesia, and Malaysia. These quotas will allow specific volumes of textile and apparel from these countries to enter the US market free of Section 301 duties for an initial three-year period.

This differential treatment has sparked fears that Indian manufacturers could be disadvantaged. Rahul Mehta of CMAI pointed out that a further 10 percent distinction between Bangladesh and India represents a major impact risk. Kumar Duraisamy, Joint Secretary at TEA, said that the volatility is intense, noting that while their industry was recovering from previous disruptions, switching focus away from the US market immediately is not feasible. The textile sector remains heavily reliant on the U.S. market, which typically accounts for nearly $11 billion of annual exports.