August 28, 2025 — A new wave of U.S. tariffs on Indian goods, escalating to a 50% rate, took effect at midnight on Wednesday, significantly impacting India’s export-driven industries. The tariffs, doubled from an initial 25% imposed on July 30, 2025, are a response to India’s continued purchase of Russian oil, according to U.S. officials. While some sectors face severe disruptions, others, notably pharmaceuticals, have been spared—for now. The move has sparked economic concerns in India and drawn sharp criticism from U.S. Democrats, who argue it could harm American consumers.
Sectors Hit Hardest by the Tariffs
The 50% tariff applies to a wide range of Indian exports, with labor-intensive sectors expected to bear the brunt. According to the Global Trade Research Initiative (GTRI), Indian exports to the U.S., valued at $86.5 billion in 2024, could plummet to $50 billion in 2026, threatening millions of jobs. Key sectors affected include:
Textiles and Apparel: With $10.8 billion in annual exports to the U.S., India’s textile industry faces effective duties of nearly 64%. The Tiruppur cluster in Tamil Nadu, a global hub for cotton knitwear employing over 600,000 workers, is particularly vulnerable.
Gems and Jewellery: Exports worth $9.94 billion, primarily from Surat, now face 52.1% duties, leading to order cancellations and layoffs in India’s diamond processing hub.
Shrimp and Seafood: The $2.4 billion seafood export market, with shrimp accounting for half, is hit with 60% duties, risking India’s competitiveness against countries like Ecuador.
Auto Components: Of the $6.6 billion in auto parts exported to the U.S., $3.4 billion face 25% tariffs, while the rest are subject to the full 50%, threatening India’s 40% market share in key components like gearboxes.
Chemicals, Carpets, Leather, and Agricultural Products: These sectors, including $6 billion in basmati rice, tea, and spices, face the full 50% duty, potentially ceding market share to competitors like Pakistan and Thailand.
The tariffs disproportionately impact India’s micro, small, and medium enterprises (MSMEs), which account for over 70% of export capacity in these sectors. Operating on thin margins, these firms, concentrated in clusters like Surat and Tiruppur, face production cuts and job losses.
Exempted Sectors: Pharmaceuticals and Electronics
Not all sectors are affected. The Indian pharmaceutical industry, a cornerstone of U.S.-India trade, has been exempted from the 50% tariffs due to its critical role in supplying affordable generic drugs to the U.S. healthcare system. India exports $8.7 billion to $12.7 billion in pharmaceuticals annually, accounting for nearly half of U.S. generic medication imports. Experts highlight that this exemption reflects the U.S.’s reliance on India’s cost-effective medicines, which saved the U.S. healthcare system $219 billion in 2022 alone. However, President Trump has warned that tariffs could rise to 200% if pharmaceutical production does not shift to the U.S.
Electronics, including $14.64 billion in exports like iPhones assembled in India, are also exempt under existing bilateral agreements. Other exempted categories include petroleum products ($4.1 billion), certain metals, and computing equipment like motherboards. Approximately 30% of India’s exports to the U.S., valued at $27.6 billion, remain duty-free.
Despite the exemption, pharmaceutical stocks such as Ajanta Pharma, Lupin, and Sun Pharma experienced declines on August 28, 2025. Analysts attribute this to market uncertainty and fears of future U.S. pressure to localize manufacturing, as well as broader economic concerns stemming from the tariff escalation.
Political and Economic Reactions
The tariffs have drawn sharp criticism from U.S. Democrats, who argue they will raise costs for American consumers. “These tariffs are hurting Americans,” said a Democratic spokesperson, emphasizing the potential for higher prices on goods like clothing and jewelry. The party has called for a reassessment of the policy, citing its impact on U.S.-India relations and domestic inflation.
In India, former Reserve Bank of India Governor Raghuram Rajan explained that the tariffs are part of President Trump’s strategy to address trade imbalances and pressure India over its Russian oil imports. Rajan noted that India’s refusal to open its agricultural sector to U.S. imports, which face a 39% average tariff in India compared to 4% in the U.S., has fueled Trump’s grievances.
Indian Prime Minister Narendra Modi has responded by promoting self-reliance and announcing measures to mitigate the impact, including tax cuts and financial assistance for exporters. Modi’s government is also exploring alternative markets in Latin America and the Middle East to offset losses in the U.S. market. However, critics argue that these measures lack clarity and may not fully cushion the blow to MSMEs.
The tariffs stem from U.S. objections to India’s purchase of Russian oil, which increased from 1% to 37% of India’s oil imports since the Ukraine conflict began. U.S. Treasury Secretary Scott Bessent accused India of “profiteering” from Russia’s war, a charge India refutes, citing energy needs for its 1.4 billion people. India has also accused the U.S. of selectively targeting it, noting that China and the EU continue to import Russian energy with less scrutiny.
Analysts remain cautiously optimistic about India’s economic resilience. Fitch and Morgan Stanley project a 6.5% GDP growth for FY26, citing India’s low export-to-GDP ratio and strong domestic demand. However, the loss of U.S. market share could slow rural job creation and industrial growth in export-dependent clusters.
As India navigates this trade shock, exporters are urged to diversify markets and streamline costs, while policymakers consider targeted support for affected sectors. The tariffs mark a critical juncture in U.S.-India relations, with the potential to reshape bilateral trade dynamics for years to come