Trade war: US tariffs on India may hurt manufacturing, labour-intensive sectors; experts warn of wider economic impact

The recent hike in US tariffs on Indian imports could severely impact labour-intensive and manufacturing sectors in India, posing a risk to the country's economic growth if the 50% duty continues, experts warned.

They said the steep tariffs not only risk slowing exports and investment but also add pressure on the rupee, raising concerns for the overall economic outlook.


"The second-round impact on private capex, domestic manufacturing as well as labour markets could emerge as a key risk over the coming months in the event that these tariffs stick," Sakshi Gupta, principal economist at HDFC Bank told ET.

She also noted that hiring in India has already remained weak in the first quarter of the current fiscal.

"The implication for the labour market could be seen in sectors like gems and jewellery, textiles, leather and footwear," Gupta added.

US President Donald Trump on Wednesday announced a secondary or additional tariff of 25% on India for its crude oil trade with Russia, citing national security and foreign policy concerns.

With this move, the total tariff on Indian goods entering the US will rise to 50%. The first 25% tariff will take effect on August 7, and the ‘secondary tariff’ on Indian imports to the US, scheduled to be effective in 21 days, that is August 27 onwards.

India’s unemployment rate was at 5.6% in June, with rural unemployment at 4.9% and urban at 7.1%.

Madan Sabnavis, chief economist at Bank of Baroda, told ET that, "This is not good news as the total rate will now be one of the highest imposed by the US. The clue is to negotiate with the government soon,"

He also flagged the double challenge of falling exports and a higher oil import bill, which could have broader macroeconomic consequences.

Economists now expect a downward revision in India’s growth projections if the tariffs remain.

According to ET, Gaura Sengupta, Chief Economist at IDFC First Bank, estimated that a 50% duty could drag down FY26 GDP growth by 0.4%.

Gupta echoed similar concerns, stating, "We will have to significantly lower FY26 GDP growth forecast to below 6%, baking in at least a 40-50 bps hit-double from our earlier estimates".

Economists also expect the rupee to come under renewed pressure due to rising trade tensions and global uncertainty.

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