How can India offset impact of Donald Trump’s tariffs? ‘Two broad options’ to absorb shocks - explained

How should India deal with the 50% tariffs imposed by the Donald Trump administration on Indian exports? Ajay Srivastava of Global Trade Research Initiative (GTRI) says there are two ways in which India can absorb the shock.

Starting today, Indian exporters to the US market face significant hurdles as Trump's 50 per cent tariffs take effect. According to Srivastava, who heads the trade research organisation GTRI, India has two primary strategies to address these US-related challenges.

According to GTRI's assessment, India is expected to reduce the negative effects of US tariffs in the coming months.

US tariffs: What should India do?

Ajay Srivastava says that India has the capability to counterbalance American trade losses through enhanced internal market consumption.

"We have two broad options. One, the bigger option is local markets. Our exports are just 20 per cent of the Indian economy and the Indian market is very big. It absorbs 80 per cent of Indian production and there is scope for further absorption of this because the Indian economy is growing at 6 to 7 per cent annually," Srivastava told ANI.

"Domestic consumption can happily absorb some of the shocks," he believes.

The other viable solution involves identifying countries to redirect exports that cannot enter the US market.

The government is actively pursuing Free Trade Agreements with the European Union, whilst having already secured one with the UK. Plans are underway for swift implementation, alongside negotiations for additional FTAs with Peru and other nations.

The impact will be particularly severe on sectors employing large workforces, including diamonds, gems, jewellery, textiles, garments and shrimp industries, due to their substantial reliance on US markets and heightened competition from nations enjoying lower tariff rates.

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In the US market for textiles and garments, India faces primary competition from China, Bangladesh and Vietnam, with these nations benefiting from comparatively reduced tariff structures.

Without tariff reductions, Indian products are likely to gradually disappear from the US marketplace, as competitors gain advantage through preferential rates.


However, Srivasatava says there are positive aspects to consider. The US market has a distinctive but smaller proportion of small and medium-sized exporters. Entry into developed markets requires strict certification processes.

"All the small or medium-sized factories can afford the price of those certifications, and they generally export to low-end markets. Very few medium or small-scale industries in the garment or textile sectors export to the US," Srivastava said.

When questioned about potential discussions with the US, he responded positively.

"Negotiations are not terminated. They have just been paused. So there is always a negotiation. Both countries are open. No country has said, neither India nor the US, that they are terminating the negotiations. So we hope that soon they may resume," he said.

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