Make America Tax Again: How U.S. Tariffs Hit India

Picture this: You walk into your favorite cafe, ready to order your usual cup of coffee. But today, the price has shot up. Why? The cafe says the cost of imported coffee beans has surged due to higher tariffs. You sigh, grumbling, but buy it anyway. 

Then, you check out a new cotton t-shirt, only to find it 20% more expensive because of higher import taxes on textiles. Your company’s software outsourcing costs have increased, forcing budget cuts. Even the medicine you rely on is set to become pricier as the pharmaceutical trade faces new hurdles.  

Now, scale that situation up – replace coffee beans, t-shirts, and software with billions of dollars in goods – and you’ve got the U.S.-India trade tension in a nutshell.

Starting April 2, 2025, the U.S. is rolling out new tariffs, making Indian exports more expensive and less competitive in the American market. But wait, what’s a tariff? 

Think of a tariff as a road toll for goods. When products cross international borders, governments might charge a fee – like a toll booth on a highway. If that toll suddenly triples overnight, fewer drivers might take that route, and businesses depending on that traffic could struggle. That’s what tariffs do to global trade.

But India isn’t just any trader in this game – it’s one of the U.S.’s biggest partners. And like in any long-term relationship, fights happen, but neither side wants to break up.

So, what’s at stake, and how will it affect industries and investors? Let’s break it down.

India-U.S. Trade: What’s at Stake?

Before we get into the details, let’s zoom out and look at the bigger picture.

The US is India’s largest trading partner. And the trade between them is booming. 

India’s goods exports to major destinations

If we look at the latest data on trade between India and the US –

India exported $87.4 billion worth of goods to the U.S. in 2024, with a trade surplus of $45.7 billion and top exports are pharmaceuticals, textiles, jewelry, IT services, and auto parts.

Right now, Indian goods entering the U.S. pay a small ticket fee (an average of 3.7%). But with the new tariffs, this ticket price could jump by 5-20%, making Indian products less attractive to American buyers.

The U.S. economy is walking a tightrope, balancing inflation control and economic growth amid rising global trade tensions. The Federal Reserve recently held its benchmark interest rate steady at 4.25% to 4.50%, citing increased economic uncertainty, partly due to proposed tariffs.

Inflation is projected to rise to 2.7% by year-end, while GDP growth has been downgraded to 1.7% for 2025, down from 2.8% last year.

Despite its economic muscle, the U.S. can’t afford to alienate India, its largest trading partner and a key supplier of critical goods like medicine and software. The two economies are deeply intertwined, making trade tensions more of a strategic puzzle than a simple power play.

So, what happens next? Let’s look at the industries that will feel the impact first

Sector-Wise Impact: The Winners and Losers

1. Pharmaceuticals: A Bitter Pill to Swallow?

Did you know that 40% of all generics in the U.S. and every second pill in Africa comes from India? That’s how big India’s $27.9 billion pharma industry is.

India’s Export of Drugs, Pharmaceuticals & Fine Chemicals

That sounds like a strong position, right? But Here Comes the Trade Challenge

The U.S. is considering a 25% tariff on pharmaceuticals, including Active Pharmaceutical Ingredients (APIs) – the raw materials that make medicines work. Right now, India imposes a 5-10% duty on U.S. devices, while the U.S. imposes none on India.

While this move is aimed at reducing reliance on China, the problem is – India and China together supply over 70% of APIs used in the U.S. If this tariff goes through, Indian pharmaceutical exports could make Indian medicines more expensive for American buyers and less profitable for Indian exporters.

To stay ahead, India is negotiating lower tariffs on U.S. medical devices in exchange for better access to American pharma markets.

But will this trade-off delay India’s self-reliance (Atmanirbhar) in medical manufacturing?

For this instead of depending solely on trade deals, India is expanding local API production under the ₹15,000 crore PLI scheme and diversifying exports to Africa, Latin America, and Southeast Asia.

What does this mean for investors?

The tariff uncertainty could lead to short-term volatility in Indian pharmaceutical stocks, especially those heavily reliant on U.S. exports.

However, companies investing in API self-sufficiency and global market expansion may emerge stronger in the long run.

Despite challenges, India aims to hit $65 billion in pharma exports by 2030, focusing on high-value drugs. Because in the end, nobody likes expensive medicine!

2. IT & Services: A Glitch in the Outsourcing Boom?

Imagine calling customer support and hearing, “Hello, this is John from Texas,” only to realize John is actually working from Bangalore. India’s $350 billion IT industry runs on outsourcing, with 60% of its revenue coming from the U.S. 

But now, that advantage could be at risk. The industry is expected to hit $350 billion by 2026, contributing 10% to India’s GDP (Infomerics Ratings), but new U.S. tariffs on IT services could make outsourcing expensive for American firms.

The U.S. wants to create more American tech jobs and is considering tariffs on outsourced IT services. This could make Indian software developers more expensive and push U.S. firms to either cut outsourcing or invest in automation. 

If this happens, India’s IT industry could lose major contracts and see a slowdown in revenue growth.

At the same time, investors aren’t taking this lightly. In March 2025, foreign investors offloaded $3.5 billion worth of Indian stocks, with the IT sector bearing the brunt due to concerns over the U.S. economy and potential tariffs. This sell-off contributed to a 3.2% drop in the Nifty IT index, pushing it into bear market territory.

To mitigate risks, Indian IT giants are investing in U.S.-based delivery centers, hiring American workers to align with US policies, and Investing in AI and automation to reduce costs and stay competitive.

​ Impact on investors: Should you upgrade or hold?

With uncertainty in U.S. trade policy, IT stocks may see turbulence in the coming months. However, companies expanding into Europe and Asia and focusing on AI-driven solutions may emerge stronger. Investors may focus on companies that adapt swiftly, as they are likely to emerge as long-term winners.

Despite trade uncertainty, India’s IT sector isn’t shutting down – it’s just debugging.

3. Agriculture: Sowing Seeds of Concern

Imagine enjoying a juicy mango, only to find out that sending it abroad just became more expensive. India’s agriculture sector contributes about 18-19% to its GDP, but looming U.S. tariffs could change that.

The U.S. is a major buyer of Indian agricultural products, including spices, rice, and fruits. Given that India’s tariffs on U.S. agricultural goods average around 39%, significantly higher than the U.S.’s 5% on Indian goods, the U.S. seeks to balance this disparity

The anticipation of these tariffs has led to concerns among Indian exporters. Sectors such as spices, rice, and other staples are particularly vulnerable. Exporters fear losing their competitive edge.

To mitigate potential impacts, Indian agricultural exporters are, exploring new markets,  diversifying export destinations to reduce dependency on the U.S.​ enhancing quality, and engaging in diplomatic efforts to negotiate favorable trade terms.​

Impact on you: What to expect?

Investors with stakes in companies heavily reliant on agricultural exports to the U.S. may brace for potential revenue declines. However, firms that successfully diversify their markets or focus on domestic consumption may offer more stable returns.​

4. Textiles & Apparel – Is India’s Fashion Future Getting a Price Hike?

Ever checked the tag on your favorite t-shirt? Chances are, it was made in India. The textiles and apparel industry contributes 2.3% to the country’s GDP, 13% to industrial production, and 12% to exports. Europe and the US consumed nearly 66% of India’s apparel exports, 58% of finished non-apparel goods, and 12% of raw materials/semi-finished materials.

Our country has a share of 3.9% of the global trade in textiles and apparel. Major textile and apparel export destinations for India are the USA and EU with around 47% share in total textile and apparel exports.

In 2024, India shipped $10.8 billion worth of textiles and apparel to the U.S., making it the third-largest supplier after China and Vietnam. India holds a 10.8% share of the U.S. textile market, but new tariffs could make Indian clothing more expensive, leading U.S. buyers to switch to cheaper alternatives like Vietnam and Bangladesh.

How India’s Textile Industry Is Adapting?

To stay ahead, Indian textile firms are, negotiating for lower or zero tariffs from both sides to maintain U.S. market share, investing in eco-friendly fabrics to attract sustainability-focused buyers, and boosting domestic production with government incentives like the PLI scheme.

Impact on investors: Should you weave this into your portfolio?

Investors expect some short-term volatility. Companies heavily reliant on U.S. exports could feel the pinch, but those expanding into other global markets may see long-term gains. Sustainability-focused brands could stand out in a changing market.

Despite the challenges, India’s textile industry is far from unraveling. Because let’s be real – fashion trends change, but Indian craftsmanship never goes out of style!

The impact of tariffs isn’t just confined to Pharmaceuticals, IT, Agriculture, and Textiles – it’s like a ripple in a pond, affecting industries far beyond the obvious. 

In an interconnected market, a hit to one industry can reshape growth, jobs, and investment. For investors, staying ahead of policy shifts isn’t optional – it’s essential.

What to Watch For?

With April 2nd fast approaching, one thing is clear: the markets favor those who adapt quickly – and investors who spot the signals early will have the edge.

However, investors don’t need a crystal ball to prepare. Markets reward adaptability, and as global trade shifts, there are key patterns to watch.

Short-Term Volatility vs. Long-Term Growth

Expect market swings as companies adjust pricing, renegotiate deals, and explore new markets. But in the long run, industries that pivot, innovate, and expand globally will lead the next wave of growth. 

Companies investing in AI, automation, and alternative trade routes will be best positioned to thrive.

Follow the Money Flow

With the U.S. tightening trade, capital and businesses are already shifting focus to other regions. 

Sectors expanding into Europe, the Association of Southeast Asian Nations (ASEAN), and the Middle East will likely outperform those overly reliant on U.S. exports. 

Investors should watch for companies to strengthen their global presence.

Government-Backed Industries

India isn’t just watching from the sidelines – it’s actively shaping its trade future. 

PLI schemes, trade agreements, and policies boosting self-sufficiency will create new winners. Pharma, renewable energy, advanced manufacturing, and high-tech industries will likely see the most support and incentives.

Final Thoughts: Navigating the Trade Storm

Trade wars aren’t just about economics – they’re about power, policy, and positioning. While the headlines may seem alarming, history tells us that markets adapt, businesses adjust, and opportunities emerge from disruption.

The U.S. and India share a complex but strong trade relationship – despite tariffs, the two economies remain deeply interconnected. The U.S. may flex its economic muscle, but it doesn’t want to alienate India, given its role as a key ally, consumer market, and tech powerhouse.

For investors, this isn’t the time to panic – it’s the time to strategize. Companies that pivot smartly, innovate relentlessly, and explore new markets will be the ones that thrive.

Because investing is NOT JUST ABOUT WEATHERING THE STORM – IT’s ABOUT LEARNING HOW TO SAIL.