In a decisive move that echoes the protectionist stance of his first term, US President Donald Trump last week slapped widespread trade tariffs on imports from strategic trade allies. Among the primary targets, India was imposed a flat 26 per cent duty on all goods being exported to the US, which sparked unease within the country’s export-centric sectors and industries, particularly the micro, small and medium enterprises.
The US has been a key export market for India. With the bilateral trade between the two countries estimated at $129 billion in 2024 and India’s export to the US reaching $87 billion, any trade turbulence on this scale may appear challenging. But while tariffs dominate the headlines, beneath the surface lies a story of resilience, adaptability, and shifting trade dynamics.
Over the past decade, trade between the US and India has consistently grown backed by expansion in MSME-heavy sectors including electronics, gems and jewellery, apparel, pharmaceuticals, and engineering goods. The US currently accounts for reportedly close to 18 per cent of India’s overall exports.
When Trump returned to the Oval Office this time, it signalled continued diplomatic cooperation with India and aligned strategic interests. But instead, Trump’s attention shifted to a renewed “America First” agenda with trade tariffs to bolster local industry.
Against that backdrop, let’s take a closer look at what the tariffs might mean for MSME-dominated industries, and if the impact will be felt in the near term, over the medium term, or well into the future.
With around 10 lakh units, 90 per cent of which are MSMEs, the most immediate and probably the hardest hit would be the gems and jewellery sector. In FY24, the US had a share of close to $10 billion or 30 per cent of India’s $32 billion gems and jewellery exports.
The weighted average US tariff on its import of gems and jewellery from India has been increased from 3.17 per cent to 26 per cent. Considering gems and jewellery is a discretionary item for purchase, high tariffs may hurt both demand and pricing, particularly in the polished diamond segment as it is already facing intense competition from lab-grown diamonds.
This could translate into a substantial decline in demand and a concern, especially for smaller exporters. In the medium to long term, tariffs may also force exporters to redirect shipments via transit hubs such as Dubai, thus increasing their costs.
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