Trump's 50% Tariffs to Hit India's GDP by 1%, Economists Warn

US President Donald Trump's additional tariffs on India may damage the country's slowing economy and shave off 1% from its GDP, according to analysts. Bloomberg Economics estimates a 60% cut in outbound shipments to the US, while Nomura economists describe the 50% tariff as a "trade embargo." India's government expects a less severe impact, but may look for alternative markets in South Asia, Africa, and Latin America.

US President Donald Trump's decision to impose additional tariffs on India has sparked concerns about potential economic fallout, particularly for the country's slowing economy. The latest tariffs, set to hit India's auto parts exports, could significantly impact the sector, with analysts estimating a 1% reduction in GDP and a 60% cut in outbound shipments to the United States [1].

The tariffs, which are set to increase from 25% to 50%, are a retaliation measure against India's oil imports from Russia. The US has accused India of "fuelling" the Russia-Ukraine war by purchasing Russian oil [1]. This move is expected to affect nearly half of India's $7 billion auto parts exports to the US, according to senior industry executives [3].

While the Reserve Bank of India (RBI) Governor Sanjay Malhotra downplayed the immediate impact of these tariffs, highlighting that a major impact would only occur with retaliatory tariffs, the long-term effects could be substantial [1]. The RBI has maintained its key lending rate at 5.5% and kept its GDP growth forecast for the 2025-26 fiscal year at 6.5%, despite the uncertainties [1].

The Indian government, while expecting a less severe impact, is reportedly exploring alternative markets in South Asia, Africa, and Latin America to mitigate the effects of the tariffs [2]. The government's strategy aims to diversify trade partners and reduce dependency on the US market.

Globally, the tariffs are part of a broader trade policy shift by the US, with President Trump imposing new tariffs on numerous countries and sectors. The overall average effective tariff rate is projected to rise to 18.3%, impacting dozens of countries [2]. The US has also threatened to impose tariffs on semiconductor and pharmaceutical imports, with potential rates as high as 250% on pharmaceuticals [2].

The next policy review by the RBI is scheduled for September 29 to October 1, 2025, during which the central bank will assess the evolving economic landscape and the impact of these tariffs [1].

References:
[1] https://www.businesstoday.in/india/story/no-major-impact-on-indian-economy-rbi-governor-after-donald-trump-threatens-additional-tariffs-on-india-488066-2025-08-06
[2] https://finance.yahoo.com/news/live/trump-tariffs-live-updates-india-hit-with-50-tariffs-trump-targets-100-duties-on-semiconductors-200619770.html
[3] https://economictimes.indiatimes.com/industry/auto/auto-components/latest-tariffs-to-impact-half-of-auto-component-exports-to-us/articleshow/123150012.cms