India-US Trade Tensions: Near-Term Investment Risks in Export-Dependent Sectors

The India-US trade relationship has entered a volatile phase, marked by the imposition of steep tariffs on Indian exports and a recalibration of supply chains. While India's strategic diversification into new markets has cushioned some sectors, the near-term risks for export-dependent industries-particularly textiles, gems and jewelry, and automobiles-remain acute. Investors must navigate a landscape where geopolitical tensions, sector-specific vulnerabilities, and shifting trade dynamics converge to create both challenges and opportunities.

Tariff Shock: Textiles and Gems at the Forefront

The U.S. tariffs, which surged to 50% in August 2025, have disproportionately impacted labor-intensive sectors like textiles and gems and jewelry. According to a report by Kotak Securities, over one-third of Indian textile exporters reported a 50% drop in turnover, with key hubs like Ludhiana and Tiruppur experiencing production slowdowns. The U.S. accounts for 34% of India's textile exports, and the tariff has rendered Indian textiles less competitive compared to rivals like Vietnam and Bangladesh. Similarly, the gems and jewelry sector, which exports 33% of its global output to the U.S., faces a revenue collapse as the 50% tariff compounds existing market headwinds.

The human cost is stark: industry warnings suggest over 2 million jobs could be lost in the textile sector alone if tariffs persist. For investors, this signals not just revenue risks but also potential social and political instability, which could further disrupt supply chains.

Automotive Components: A Silent Crisis

While the automotive sector initially appeared insulated, Q4 2025 financial reports reveal growing exposure. The U.S. tariffs target critical auto components-castings, wire harnesses, and metal parts- segments where India is a major exporter. Indian automakers, including MSMEs, now face margin compression and are scrambling to diversify into markets like the UAE and Southeast Asia. Deloitte's India economic outlook notes that these firms lack the technological integration and financing to compete globally, exacerbating their vulnerability.

Resilience in Pharmaceuticals and Electronics

Not all sectors are equally exposed. Pharmaceuticals and electronics, temporarily exempt from tariffs, have driven India's export growth. In November 2025, exports to the U.S. surged 22% year-on-year, reaching $7 billion, with pharmaceuticals and electronics accounting for a significant share. U.S. imports from India in early 2025 hit $58.11 billion, underscoring the sector's strategic importance. However, this resilience is fragile: any rollback of exemptions could trigger a sharp correction.

Diversification and the Rupee's Role

India's pivot to markets like China, Spain, and the UAE has mitigated some U.S.-linked risks. Exports to China jumped 90% year-on-year, while the rupee's devaluation has offset part of the tariff-driven price erosion. Yet, reliance on these markets introduces new geopolitical risks, particularly with China. For instance, India's continued purchases of Russian oil have strained U.S. relations, complicating trade negotiations.

Investment Risks and Strategic Considerations

For investors, the key risks lie in sector-specific revenue declines, supply chain reconfigurations, and currency volatility. The textile and gems sectors, with their high labor intensity, are most exposed to near-term shocks. Meanwhile, the automotive industry's MSMEs face long-term competitiveness issues. Conversely, pharmaceuticals and electronics offer relative stability, though their growth hinges on sustained U.S. exemptions.

The Indian government's push to diversify exports into Latin America and Africa is a positive signal, but these markets lack the scale of the U.S. Additionally, the rupee's depreciation, while beneficial for competitiveness, could trigger capital outflows-a risk highlighted by $4.4 billion in foreign portfolio outflows post-August 2025.

Conclusion

India's export sectors are navigating a complex web of trade tensions, sector-specific vulnerabilities, and strategic recalibrations. While pharmaceuticals and electronics demonstrate resilience, textiles, gems, and automobiles face acute near-term risks. Investors must weigh these dynamics carefully, prioritizing sectors with diversified markets and strong policy support. As the India-US relationship remains fraught, the ability to adapt to shifting trade policies will define the fortunes of Indian exporters-and their investors-in the months ahead.