The India-US trade deal has finally fructified, with US tariffs coming down to 18 per cent from 50 per cent under the agreement reached on Monday. However, this came after significant challenges that pushed Indian exporters to diversify.
Indian exports suffered a decline in September and October due to the 50 per cent tariffs that came into effect on August 27. However, overall exports in November jumped 19 per cent as New Delhi’s exports to the US also jumped 22 per cent, largely driven by products that are not part of the reciprocal tariffs.
Shipments in September, the first month that saw the impact of 50 per cent tariffs, showed that India goods have managed to find markets elsewhere. Also, several trade deal negotiations that were stalled earlier were revived. New Delhi signed a trade deal with the European Union, UK, Oman and also concluded the New Zealand deal.
The commerce and industry ministry has also restarted trade talks with Canada and Israel, which were canned earlier. While the political relationship with Canada led to the rupture of that trade deal, talks with Israel stopped in 2022 as Indian negotiators were not convinced about the gains. However, India is now exploring a preferential trade agreement with Israel.
Analysis of data released by the commerce and industry ministry showed that while gems and jewellery exports to the US plummeted 76 per cent in September compared with last year, total gems and jewellery exports registered only a marginal 1.5 per cent dip. Shipments to the United Arab Emirates jumped 79 per cent, to Hong Kong 11 per cent, and Belgium 8 per cent, the data showed.
A similar pattern was visible in auto components, whose exports to the US dropped 12 per cent in September, but shipments to Germany, the UAE, and Thailand helped total auto component exports grow 8 per cent. Marine products grew 23 per cent in September and 11 per cent in October, largely due to higher exports to China (up almost 60 per cent), Japan (37 per cent), Thailand (about 70 per cent) and the European Union.
The sectors badly hit by tariffs
However, low-margin, labour-intensive product segments such as cotton garments, sports goods, carpets, and leather footwear, which face stiff competition from China and the Association of Southeast Asian Nations (ASEAN) countries, are struggling to diversify their shipments, indicating that the long-term impact of US tariffs could be uneven, hitting small units operating across the country more. The low-margin products are typically more susceptible to trade-related shocks due to working capital stress and are unable to set up units abroad.
Sports goods, with 40 per cent exports going to the US, have not yet found alternative markets, and hence, higher tariffs have dragged down overall exports by 6 per cent in October. The cotton garment sector, where Indian products have large competitors such as Vietnam and Bangladesh, too, struggled in its diversification efforts. After a 25 per cent decline in exports to the US, shipments to the UAE, Spain, Italy and Saudi Arabia went up, but the category exports slipped 6 per cent in September. Similarly, leather footwear exports also registered a 10 per cent overall decline after a sharp dip in exports to the US.
According to an SBI’s Ecowrap report released in November, India’s exports managed to find alternative markets and that diversification could help India withstand the US tariff hit over a period of time. The report said India’s total merchandise exports between April and September this year inched up by 2.9 per cent, and cumulative exports to the USA also registered a growth of 13 per cent during the same period, though there could be some front-loading effects, with September figures for the US registering negative year-on-year growth of 12 per cent.
“Interestingly, the share of India’s merchandise exports to other countries during this period has increased significantly, indicating the diversification of our export basket, with the UAE, China, Vietnam, Japan and Hong Kong, as also Bangladesh, Sri Lanka and Nigeria, among the top destinations across different product categories. So, could it be that some destinations are now exporting more to the USA after procuring from India?” the report said.
Australia’s share in US imports of pearls and precious and semi-precious stones has increased to 9 per cent year-to-date in January–August 2025 from 2 per cent during the same period in the previous year. Similarly, Hong Kong registered an increase in share from 1 per cent to 2 per cent during the same period. Meanwhile, US imports of these commodities showed declining growth in August, the report said.
The report said that the decline in container shipments from India and China has seen a commensurate rise in shipments from Indonesia, Thailand and Vietnam, indicating rerouting.
“The tariffs have led to a steep drop in container volumes of shipments to the US. The highest container decline is from India, at –18.4 per cent, followed by China at –16.3 per cent, while countries like Indonesia, Thailand and Vietnam registered positive growth of 10.1 per cent, 3.6 per cent and 3.6 per cent respectively,” the report said.
