Trump’s tariffs will crush India’s exporters, threatening livelihoods

NEW DELHI - A big part of India’s economy is facing a nightmare scenario.

On Aug 27, the extraordinarily

high tariff of 25 per cent

that US President Donald Trump imposed on its exports to the United States is set to double.

Businesses that were viable are bound to go bust quickly as orders dry up.

“We were shocked with the 25 per cent tariff, and thinking about how to meet this problem, how to face this,” said Mr Ishtiaq Ahmad Khan, a fourth-generation carpet maker in Bhadohi, in the giant state of Uttar Pradesh. “But now it’s 50 per cent, so it became impossible. We’re afraid that a lot of people will be unemployed.”

Carpet making is a big business in India, with 98 per cent of the product shipped overseas.

In recent years, nearly 60 per cent of that stock has gone to buyers in the US.

For US importers, that US$500 (S$641) rug now comes with a US$125 tariff and possibly a US$250 one.

Bhadohi is at the heart of north India’s carpet belt, home to hundreds or thousands of manufacturers like Mr Ishtiaq’s company, Ajaz Carpets.

They eke out their profits, so they do not have the means to absorb the giant price increases their US customers now face.

Mr Ishtiaq, who led the industry’s trade promotion council, estimates that 2.5 million people who live in the region could be plunged into subsistence-level poverty.

Other industries in line to face unbearable wipeouts include textiles and garments, aquaculture – mainly farmed shrimp – and furniture.

They are not India’s flashiest businesses, but together they employ many millions of workers, and the billions they earn have helped keep India financially strong during periods of crisis.

Carpets are nowhere near the highest-value component of the India-US trade in goods, which was worth US$129 billion in 2024.

But for now, questions about the even bigger, more strategic parts of the two countries’ trading relationship have been postponed.

India is the primary producer of generic pharmaceuticals used in the US, for instance, and the US is that industry’s biggest consumer market.

But a carve-out in the Trump administration’s tariffs has left it in limbo.

It costs nothing to import Indian drugs at the moment. But Mr Trump has promised that there will soon be a 150 per cent tariff, and eventually perhaps 250 per cent, which Mr Trump believes will kick-start production in the US.

Similar exemptions for semiconductors make it impossible to predict whether India’s thriving electronics manufacturing – exemplified by Apple’s shift in iPhone production from China to India – can survive. For the moment, they are off the hook.

Oil and gas are complicated, too, as energy products are still exempted from tariffs.

India’s purchase of Russian oil,

as it happens, is Mr Trump’s justification for the additional, punitive tariff on its goods. Until that threat was made, the door was open to increasing India’s purchase of American products.

The potential damage the tariffs could inflict on India’s gems and jewelry industry, another big-ticket part of the trading relationship, is not yet fully clear. But insiders are raising alarms, in part because the US is India’s biggest buyer of gems.

On Aug 7, when Mr Trump announced the 50 per cent rate, Mr Kirit Bhansali, chair of the industry’s main association, wrote that 30 per cent of the global trade in Indian gems was at risk.

“A blanket tariff of this magnitude is severely devastating for the sector,” he wrote.

Rival sectors in Turkey and Thailand are much smaller, but they will gain an unbeatable advantage over India thanks to lower national tariffs by Mr Trump.

If there is any government plan to save the affected businesses, it is in hiding.

Federal officials have asked the states to look after their own companies. Mr Ajay Srivastava of the Global Trade Research Initiative, a think-tank in New Delhi, said state governments have always depended on the national government to lead the way on foreign trade.

Likewise, he said, India’s banks will not be ready to forgive loans.

On Aug 15, India’s Independence Day, Prime Minister Narendra Modi took to the ramparts of the 16th-century Red Fort to deliver a traditional address to the nation.

Without naming Mr Trump, who until recently he considered a political friend, or his tariffs, Mr Modi nonetheless delivered a message on the subject.

He made reference to tough times ahead – and the need for India to go it alone. That way, he said, “no selfish interest will ever be able to entrap us”. He extolled the virtues of self-reliance.

“The greater a nation’s reliance on others, the more its freedom comes into question,” Mr Modi said, in an echo of Mahatma Gandhi and the leaders who fought for independence from the British Empire and its mercantile domination of India.

Mr Modi’s attempt to buck up India’s 1.4 billion citizens spoke to the domestic political challenges Mr Trump’s attacks have dropped in his lap.

One of the few new programmes he named will be aimed at creating more jobs for young people.

But for the Indian technocrats and economists who for generations have pushed India towards free trade as the best way up the ladder of prosperity, Mr Modi’s rally cry sounded like a step backwards. NYTIMES