Resilience to Trump tariffs
Business Standard, 9 November 2025
The narrative on India's economy in late 2025 is fear. The consensus is that a hostile US trade regime will derail our growth. The regime had three shocks. Tariffs escalated from 25% in April to 50% by August 27. And then, a $100,000 fee on new H-1B petitions began September 21. This assault on goods and services exports is seen as an existential threat to Indian exports. But the data reveals a more complex, resilient picture. The early evidence does not show a collapse.
To understand the impact of any shock, we must first measure the system correctly. Aggregate export figures have noisy components. Monthly trade data is distorted by volatile petroleum prices. In recent years, this has been further complicated by the geopolitical arbitrage of refining cheap Russian crude for re-export. This is not a story of Indian competitiveness; it is one of global politics. Similarly, trade in gold and jewellery often functions as a channel for capital flows, responding to investment flows rather than underlying productivity. A clearer signal comes from 'core exports': the monthly sum of all goods and services, in US dollars, excluding petroleum and gold. This metric reflects India's real, value-added engagement with the global economy.
Using this core metric, data through August 2025 shows the impact of the April 'first wave' tariff. The 50% tariff and H1B fee impacts are not yet visible in this data. The striking fact is the absence of a collapse. Core exports, at $62.6 billion in August, remain on the upward trajectory seen since the 2020 low. The April tariff is not a significant deviation. While the August level is a dip from the Q2 peak, it remains structurally elevated over any period before 2024.
Year-on-year (YoY) growth confirms this. Core exports, in USD, have not declined. YoY growth was 4.52% in August and positive all year. This decelerated from the 2021-2022 post-pandemic rebound, but still signifies robust demand.
Aggregate data can mask specific vulnerabilities. The true test must be in the US-India corridor. For this, we examine the most vulnerable component: goods exports to the US. We measure this by observing India's share of total US goods imports. Here, data available through July shows the first concrete sign of impact. India's share dipped from a peak of nearly 3.7% in early 2025 to 3.14% in July. This dip must be set against a strong, long-term uptrend. India's share of US goods imports has risen steadily from the late 1990s. The July 2025 figure, while a dip, remains well within this long-term upward channel.
There is a striking contrast with the place of China in US goods imports. Its share of US imports collapsed from a peak above 22% in 2018 to 9.04% by July 2025. This is a sustained, multi-year strategic retreat, running across administrations and accelerating now. US importers are actively diversifying from China.
The data does not capture the 50% tariff; the worst may yet be in store. Three conceptual arguments, however, weigh in India's favour.
- Trade redirection
- A 50% US tariff on Indian prawns makes them uncompetitive in the US, but not globally. The Indian exporter will find new buyers, perhaps offering a better price in (say) Germany, displacing a (say) Vietnamese seller there. That seller, facing less Indian competition, can fill the gap in the US. This rearrangement imposes a one-time adjustment cost: finding new partners, re-tooling for new standards, and new logistics. These costs are non-trivial. But they are a one-off cost, and in the end, Indian exporters emerge with greater long-term resilience and market opportunity. This is a net positive for the emergence of high productivity firms in India.
- `Tariff engineering'
- Sophisticated firms will not passively absorb a 50% tariff. The best Indian firms are multinationals. They will reorganise global production to deliver into the US from a low-tariff location. The 50% tariff for the US rewards Indian MNCs, and gives Indian firms the incentive to accelerate outbound FDI. This is a net positive for firm sophistication, GVC integration, and the emergence of high productivity firms in India.
- A negative beta asset?
- Is India now a `negative beta' asset against the US? The Trump chaos is a net positive for India's services economy. When the US environment becomes chaotic, demand for Indian services rises. The pandemic's work-from-home shift created a permanent rise in demand for Indian IT. The 2025 disruptions are an analogous shock. US firms will hire more into Global Capability Centres (GCCs) in India, and contract-out more to services exporters in India. They will relocate high-value, experienced staff facing visa issues back to India. Each of these moves will create more high value work in India, and leads to knowledge spillovers into the Indian workforce, which will foster Indian economic growth.
For Indian firms, this is not a time for fear, this is a time for better strategic thinking. The global environment is changing, so what's the best place for the Indian firm in this changing landscape?
This environment also shapes policy thinking. The union government should reduce tariff and non-tariff barriers, so as to reduce costs in India, to increase competitive pressure faced by Indian firms and to host more global MNCs in India. Elements of this include better trade deals with the UK, the EU and the US. The essence of these deals is not the barriers against Indian exports (which are not too material, other than the Trump tariffs in the US). Our prime focus should be on how India becomes a mature market economy that is well integrated into globalisation, with free flows of goods, services, capital, labour, entrepreneurship. Each step that the Indian state takes to open up makes India stronger through reduced costs in India, and as global firms operating in India bolster employment, exports and knowledge.
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