Clock ticking on US tariffs: Can India navigate the global trade storm?

With a 26 per cent US tariff on key Indian exports looming on July 15, India finds itself at a critical juncture in global trade. The proposed duties — covering over $6 billion worth of goods across sectors like steel, aluminium, auto parts, and textiles — threaten to derail already fragile supply chains. As the India–US trade pact talks enter a decisive phase, New Delhi faces growing pressure to secure a limited deal that can stave off steep tariff penalties and restore momentum to bilateral trade.

Amid this uncertainty, India continues its push to emerge as a credible alternative to China in global supply chains. The government is intensifying its Production-Linked Incentive (PLI) programs across 14 sectors, including electronics, textiles, and automotive, to boost exports and domestic manufacturing. The pharmaceutical industry — with one of the largest pools of US FDA-approved facilities — is poised to scale up exports of generics, while new trade pacts like the Comprehensive Economic Partnership Agreement (CEPA) with the UAE have already doubled bilateral trade.

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Global Growth Slows: India Not Immune to Trade Headwinds

Yet, even as India gains from global diversification strategies, it remains susceptible to the broader economic slowdown. Morgan Stanley recently cut India’s FY26 GDP growth forecast to 6.1 per cent, and the IMF revised its 2025 outlook to 6.2 per cent, citing the ripple effects of global trade contraction.

The roots of the disruption trace back to the Trump administration’s 2018 tariff escalations targeting China, the EU, and Canada. The US–China standoff deepened over the years, culminating in steep 2025 tariffs of up to 245 per cent on select Chinese goods under President Donald Trump’s renewed leadership. Although recent signs point toward a cautious de-escalation — with bilateral meetings resuming and some tariff rollbacks on the table — the global economy has already felt the shockwaves.

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According to revised mid-2025 estimates by the World Trade Organisation (WTO), global merchandise trade is now expected to stagnate around 1.9 per cent growth, far below historical trends. If trade tensions escalate again, the WTO warns of a 1.5 per cent contraction, with North America’s exports potentially declining by over 12 per cent.

Global players such as the IMF and OECD are also dialing down their optimism. The IMF now projects a slide in global trade growth from 3.8 per cent in 2024 to 1.7 per cent in 2025.

A Fragmented Trade Landscape: Protectionism on the Rise

The aftermath of these trade wars has not been one-sided. China responded with sweeping tariffs of up to 125 per cent on American imports and expanded non-tariff barriers. The EU, Canada, and Mexico followed suit, imposing countermeasures on key US exports. Even long-standing US allies like Japan and South Korea have publicly criticized the move, weighing reciprocal trade policies of their own.

This tit-for-tat escalation is reinforcing protectionist sentiment and weakening the multilateral trading framework upheld by the WTO. Ocean freight volumes have dropped drastically — with container bookings from China to the US plunging by 25 per cent and global volumes down by 18.4 per cent year-on-year — choking global supply chains and intensifying recessionary fears.

Industries most affected include technology, electronics, automotive, and agriculture. In the US, retaliatory tariffs from China and the EU have crippled agricultural exports, including soybeans and pork. Meanwhile, retail giants such as Nestlé and Procter & Gamble are signaling price hikes due to rising import costs and production delays.

India’s China+1 Moment: Opportunities in Diversification

In this shifting trade environment, India is being seen as a key beneficiary of supply chain diversification. American and European companies are exploring “China+1” strategies, placing India firmly on their radar.

The PLI scheme is already bearing fruit: India’s electronics exports are on an upward trajectory, and the pharmaceutical sector is scaling operations to meet growing global demand. The government is also pursuing new bilateral and regional trade agreements — including with the EU — to enhance market access and investment flows.

However, India is not immune to the downside. Dumping concerns are growing as Chinese goods, unable to enter US markets, may flood other economies like India. Indian manufacturers face margin pressure from cheaper imports and weaker global demand. Monitoring and enforcement of trade safeguards will be critical in the months ahead.

Balancing Diplomacy and Economic Reform: The Way Forward

As tariff walls rise and retaliatory actions multiply, the global trade landscape is becoming more fragmented and uncertain. For India, the evolving dynamics offer a narrow but valuable window to expand its trade footprint — provided it can navigate policy risks and global headwinds with agility.

The path forward lies in balancing strategic diplomacy with bold economic reforms. India’s success will depend on how effectively it can tap into realigned global supply chains while insulating itself from external shocks. The stakes are high — not just for India, but for the future of open and rules-based global trade.

The author is academic associate, Economics, Great Lakes Institute of Management, Gurgaon. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.