Indian Exports Face Effective Tariff of 33.6%, Not 50%: Nomura

India's effective tariff rate on US imports is approximately 33.6%, down from the headline 50% due to exemptions and differential tariffs across sectors. Nomura estimates that 60% of US imports from India will face 50% tariffs, while significant carve-outs remain for critical sectors. Compared to regional competitors, India's effective tariff rate is higher than China's but lower than other Asian markets. Economists warn of potential economic implications, but see the tariff pressure as a catalyst for long-overdue reforms.

The new 25% tariff on India's exports to the United States, effective today, has raised the overall tariff rate to 50%, prompting American brands and retailers to urge Indian exporters to relocate production to other manufacturing countries. Major American brands, including Gap, Macy's, and Kohl's, are demanding that Indian garment suppliers share the burden of the new tariffs, as they are unwilling to absorb the costs themselves. The Clothing Manufacturers Association of India warns that while larger exporters may not face significant challenges due to their global presence, small exporters, who typically rely on a limited customer base, are at risk of complete business collapse due to the steep tariffs [1].

The new tariffs are part of a broader trade dispute between India and the United States, with President Donald Trump imposing a 50% tariff on Indian goods in response to India's continued purchase of Russian oil. This move comes just weeks after Trump instituted a new 25% baseline tariff on Indian goods, raising the overall tariff rate to 50% [2]. The latest round of tariffs on India seeks to punish the country for importing Russian oil and helping Russia finance its war with Ukraine, Trump has previously said.

The tariffs have significant implications for the Indian economy. Nomura estimates that 60% of US imports from India will face 50% tariffs, while significant carve-outs remain for critical sectors. Compared to regional competitors, India's effective tariff rate is higher than China's but lower than other Asian markets. Economists warn of potential economic implications, but see the tariff pressure as a catalyst for long-overdue reforms [3].

Exporters are already feeling the strain. Textile and apparel manufacturers in Tirupur, Noida, and Surat have halted production amid worsening cost competitiveness due to the steep duties. Exporter groups estimate that the hikes could affect nearly 55% of India’s $87 billion in merchandise exports to the US. The industrial town of Tirupur in Tamil Nadu may see 1.5 lakh job losses and a Rs 12,000 crore revenue hit [3].

India has accused the Trump administration of unfairly penalizing the country, pointing out that other countries that import oil from Russia aren’t facing such levies. The Indian government has signaled it would retaliate against Trump’s tariffs, but the extent of the response remains unclear. Senior officials from India and the US discussed bilateral ties in a virtual session, focusing on trade and investment, energy security, and defense cooperation [3].

The economic impact of the tariffs is expected to be substantial, with potential job losses and a decline in exports. However, the long-term effects remain uncertain, and the tariffs could also serve as a catalyst for structural reforms in the Indian economy. As the trade dispute continues, both countries will need to navigate the complex landscape of tariffs and trade relations.

References:
[1] https://brandequity.economictimes.indiatimes.com/news/marketing/us-retailers-keen-to-move-new-orders-out-of-india/123555240?utm_medium=homepage&utm_source=portal_category_widget
[2] https://www.cnn.com/2025/08/27/economy/trump-india-tariff
[3] https://www.financialexpress.com/india-news/trump-tariffs-india-to-face-50-tariff-from-today-everything-you-need-to-know/3958437/