The impact of US tariffs on Indian exports

17 September 2025

Rana Gupta, Senior Portfolio Manager, Indian Equities

Koushik Pal, Senior Director, Indian Equities

As Indian exports to the US face escalating tariffs, we examine the potential impact of these measures, placing them in the context of broader trade dynamics, sector-specific exposure, and macroeconomic implications. While a negotiated resolution remains the likely medium-term outcome, we also assess the risks if tariffs persist and explore possible policy responses.

Key facts

From 7 August, Indian goods exports to the US have been subject to a 25% tariff. An additional 25% tariff came into effect on 27 August, effectively raising the headline rate to 50%¹.
However, not all goods exports are tariffed. Pharmaceuticals, electronics, energy, and chemicals remain exempt. Adjusting for these exclusions, the weighted average tariff burden on the total basket of goods exports is closer to 34%, rather than the full 50%. Even at this level, India is now among the most heavily tariffed trade partners of the US, alongside Brazil and China¹.
India’s tariff is higher than the 15-20% faced by most Asian countries (excluding China). This increases the risk of India’s commoditised exports being replaced by other exporting countries².
India’s total goods exports to the US today stand at approximately USD 87 billion — equivalent to around 20% of India’s total goods exports and about 2% of gross domestic product (GDP) growth. Roughly USD 30 billion of exports, comprising pharmaceuticals, electronics, energy and chemicals, will remain exempt from levies, with the tariff burden falling on the remaining USD 57 billion or 1.3% of India’s GDP².
On an annualised basis, this USD 57 billion of goods exports face a potential loss of USD 25–45 billion, depending on demand compression and substitution. We believe such tariffs, if sustained, could impact India’s GDP growth and its external balance if there are no policy offsets³.

Macro impact

1. Trade balance

A potential loss of USD 25–45 billion in goods exports could widen India’s current account deficit (CAD) by 60 to 100 basis points (bps). Our earlier assumption of CAD at 0.5% of GDP could shift towards 1.1–1.5% of GDP growth. Even at the upper level of 1.5%, the deficit remains within manageable levels, supported by India’s strong foreign currency reserves³.

2. GDP growth

The USD 57 billion at-risk goods exports represent about 1.3% of India’s GDP, and the effective impact could be a hit of 50–80%, translating into a drag of 60–100 bps on GDP growth, without any policy support. These exports are concentrated in textiles, agriculture, and gems & jewellery — sectors that are labour-intensive and more easily replaceable by lower-tariffed suppliers to the US market, including but not limited to other South or Southeast Asian countries³.

By contrast, large, organised sectors, such as pharmaceuticals, electronics, and chemicals, are not directly impacted, though they may face indirect effects. We note that the US administration may announce sector-specific tariffs later.

3. Currency impact

A wider CAD could put pressure on the Indian rupee (INR). Depreciation risks would be higher if FDI inflows soften due to policy uncertainty. Importantly, India’s large foreign currency reserves and credible macro framework should keep INR volatility contained, even if depreciation pressure arises.

We note that a moderate depreciation of INR could also provide a boost to the rest of India’s exports.

4. Policy response

The above impacts on CAD, GDP and INR are quantified on a no-policy-response basis. In practice, policy support will cushion some of the effects. Since the most affected sectors are small and medium enterprise (SME)-heavy, the government will likely extend credit guarantees and ensure working-capital support through lenders, as it did effectively during COVID.

We believe that the Reserve Bank of India (RBI) could cut policy rates by 25–50 bps if the GDP growth impact trends toward more than 50 bps compared with the RBI’s GDP growth forecast for India at 6.5% (year-on-year) for FY2026.

We also believe that an eventual deal is likely, with the tariff level aligning with that of other Asian countries. However, over the longer term, reducing reliance on the US market through export diversification will be essential.

5. Overall assessment

If tariffs continue for the short to medium term, the impact on growth, CAD, GDP and the INR remains manageable with policy support. If they persist over the longer term (more than 12 months), indirect effects could build. These would filter through supply chains, negatively affecting the labour market, consumer and investor confidence, as well as broader economic momentum. This is not our base case, but this situation has highlighted the need for deeper structural reforms for expediting investments, reviving domestic consumption and diversifying export markets.

Sector impacts

From a sectoral lens, the immediate pressure points are textiles, gems & jewellery, and agriculture. When combined, these form a modest share of India’s GDP growth. By contrast, higher-value-added goods exports like pharmaceuticals, electronics and the most significant IT services remain exempt from tariffs. We will explore these in more detail below.

1. SMEs are impacted

SMEs account for over 50% of India’s total exports, and many tariff-affected categories are SME-dominated. Sectors, such as textiles, marine products, and gems & jewellery, together employ nearly 50 million people. A decline in exports could put around 5 million jobs at risk, or roughly 10% of sectoral employment.

In the near term, these industries could face order losses and lower margins. Lenders in these sectors may also see some pressure, though an expected government credit guarantee and sector-specific support should limit risks.

2. Large organised sectors are not directly affected

Domestic organised consumer and infrastructure sectors are not directly impacted. Likewise, services exports — notably IT and pharmaceuticals — remain outside the tariff scope, insulating India’s globally competitive sectors. This limits the direct impact on earnings of listed companies.

3. Opportunities in import substitution

Parallel to mitigation efforts, India’s import substitution agenda continues to gain traction. The Production Linked Incentive (PLI) scheme in electronics manufacturing is a case in point. The PLI scheme enables India to build competitive scale and reduce its reliance on imports. Over time, these initiatives can offset part of the external drag, while laying the groundwork for new export opportunities.

Finally, we note that India’s IT services exports through the global capability centres of mostly US corporations, and electronics and smartphone exports to the US have driven India’s total exports post COVID and narrowed India’s CAD. We continue to expect robust growth in those sectors alongside lower imports of electronics and energy due to the domestic pivot to renewable energy. These should help mitigate some of the potential downside from higher-than-expected tariffs. Still, for the sectors that are impacted and to contain indirect impact, policy response will be crucial.

Policy response will be critical

India has policy flexibility, fiscal strength, and monetary headroom to cushion the near-to-medium-term impact, without compromising on macro stability.

1. Fiscal and monetary measures are already in place

The Indian government has announced a reform on its indirect tax system – GST (Goods & Services Tax) 2.0 – a simplified indirect tax regime with structurally lower tax rates, effective 22 September, 2025. The indirect tax reductions for a range of categories (including autos, consumer durables, packaged foods, and essentials) are expected to release approximately USD24 billion of consumer purchasing power. (Please refer to our investment note “GST 2.0 — A Structural Tax Cut at the Right Time” for more details.) This is on top of income tax cuts amounting to USD12 billion already announced in February. Both direct and indirect tax cuts put together can provide domestic demand support.

The RBI has already lowered policy rates by 100 bps and ensured ample liquidity in the market. Since the inflation has remained benign, we believe the RBI has room to further cut rates by another 25-50 bps in case the GDP growth impact by higher-than-expected US tariffs trends toward more than 50 bps compared with RBI’s GDP forecast as mentioned earlier.

All such support is possible without impacting India’s macro stability.

2. Sector-specific support

The government is likely to roll out targeted measures for SME-heavy sectors, including credit guarantees and easier access to working capital. Such schemes have precedents from the COVID period, when they were deployed successfully without destabilising fiscal balances. Incentives could also be rolled out that aim to diversify the markets for goods exports.

3. Macro strengths

India’s macro balance sheet remains robust: a fiscal deficit of 4.4%⁴, a stable central government debt-to-GDP of almost 57%⁵, strong foreign currency reserves of nearly USD700 billion⁶, and moderating inflation all provide policymakers room to manoeuvre.

4. Forward outlook

These levers ensure that in the short to medium term, the tariff impact can be absorbed without significant dislocation. In the medium term, we expect a deal lowering tariff levels in line with other Asian countries, bringing relief. Over the long term, reforms to ease investments, strengthen domestic demand and diversify export markets will be key to reducing India’s vulnerability to such shocks.

Stock market impact and positioning

1. Market reaction in August

Indian equities traded flat in August, reflecting tariff risk and the cushioning role of policy support. Investors are factoring in the GST stimulus, income tax relief, and ample liquidity, which together limit downside pressure. However, in the short term, there could be varied sectoral impacts.

2. Our positioning

The tariff-exposed sectors — agriculture, gems & jewellery, and textiles — are a small share of the stock market, and we hold no direct exposure.

Our portfolio is aligned with domestic and structural growth themes as previously described under our 5D framework - Digitisation, Deglobalisation, Decarbonisation, Demography and Deficit Reduction:

Consumer Cyclicals: Benefiting from GST cuts, income tax relief, and lower rates. Structurally, sectors like consumer tech, travel, auto, and white goods should continue to see growth. These remain part of our digitisation and demographic themes.
Domestic Infrastructure: Positive infrastructure supporting domestic growth, such as telecom, hospitals, renewable power, and real estate. These sectors’ growth is, in turn, supported by market consolidation, asset completion, and cash-flow improvements. These remain a part of our broader theme of de-carbonisation and deficit reduction.
Electronics Manufacturing: The growing consumption of white goods and electronic items like mobile phones, laptops, etc., has boosted domestic manufacturing. We expect better value addition in those sectors due to component manufacturing, supported by policy-driven import substitution via PLI schemes. This is a part of our de-globalisation theme, where import substitution benefits companies in such sectors.
Pharmaceuticals: Outside of China, India remains a key country in contract research, development and manufacturing (CRDMO) of small molecules for global pharmaceutical companies, with its scale and skill unmatched outside China and South Korea. This remains a part of our de-globalisation theme, where Indian exporters could potentially gain market share due to supply chain diversification out of China.
Tactically, we now see more opportunities in tier-2 Indian IT stocks, which exhibit better growth profiles. We believe that with US Federal Reserve rate cuts and other pro-growth measures, the US corporate sector will resume spending on IT services. India’s IT sector has also undergone both price and time correction, thus making the valuation attractive.

Conclusion

The extent of US tariffs on Indian goods exports is higher than expected and, therefore, disruptive in the short term, but their impact is concentrated, manageable, and mitigable. A part of India’s export base remains exempt, and even under stress scenarios, the drag on GDP growth and the current account deficit could be cushioned by strong policy support and macro fundamentals.

The primary pressure falls on SME-heavy, labour-intensive sectors such as textiles, agriculture, and gems & jewellery, where employment risks are real but containable. For listed markets, the impact is limited, as these sectors form only a small portion of market capitalisation. Our portfolios remain positioned in areas with structural and policy tailwinds — consumption, infrastructure, electronics, pharmaceuticals and, tactically, IT.

In the short to medium term, India has the fiscal, monetary, and external buffers to manage the shock. The key risk lies in a prolonged continuation of higher tariffs (more than 12 months), which could gradually create indirect effects across supply chains, employment, jobs, investment flows, and broader economic momentum.

Our base case remains that eventual resolution will contain risks, but the current episode highlights the importance of continued reforms for expediting investments, deeper domestic demand revival, and diversification of export markets.

Overall, we believe India’s growth story continues to remain intact, albeit with some near-term friction. Support will come from policy, resilient medium-term fundamentals, and a structural shift toward deeper reforms that focus on longer-term development.

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1 US White House, August 2025

2 World Trade Organisation, ITC Trademap, JP Morgan, August 2025

3 Manulife Investment Management’s estimates, August 2025

4 Ministry of Finance, Government of India, February 2025

5 CEIC, September 2024

6 Bloomberg, Reserve Bank of India, September 2025

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Funds offered on this platform may invest in equity, fixed income securities, exchange-traded funds, collective investment schemes and/or other instruments, including derivatives, and each of which has its specific investment objective/ policy with its specific features and different risk profile.
Distribution of dividends, the frequency of distribution and the amount/rate of dividends are not guaranteed. Dividend of certain share/unit classes, at the fund or the investment manager’s discretion, may be paid out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share/unit of the respective share/unit classes after the distribution date.
Some funds may invest in bonds or debt securities which may be subject to credit, liquidity, counterparty and market risks.
Some funds may invest in non-investment grade bonds and unrated securities which may be subject to greater credit and liquidity risks, and may be more volatile than higher rated securities. Some funds may invest in investment grade debt securities, which may be subject to ratings downgrades by the rating agencies that may affect the net asset value of the fund.
Some funds may invest in derivative instruments which may involve additional risks. (For example, leverage may cause greater volatility.)
Some funds may make extensive use of derivatives including more complex derivative instruments or strategies to achieve the investment objective, this may give rise to additional exposure in that performance may rise or fall more than it would have done otherwise. In adverse situations, the fund’s use of derivative instruments may become ineffective and the fund may suffer significant losses. The use of derivatives may give rise to leverage, liquidity, counterparty and valuation risks.
Some funds may invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Some funds may invest in securities of small and/or medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Some funds may invest in a single country/region and/or a particular industry sector which may be concentrated and subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Some funds may invest directly in certain China A shares via the Stock Connect, which may involve risks related to investments via the Stock Connect and Mainland China investment.
Some funds may have significant exposure to Renminbi ("RMB") bonds/equity/assets or emerging markets, which will be subject to debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with more established markets.
Some funds with significant exposure to RMB bonds/equity/assets may hold a significant portion of assets in deposits if there are not sufficient RMB instruments to invest in. This may adversely affect the funds’ return and performance.
Some funds using Qualified Foreign Institutional Investor (“QFII”) quota to invest directly in debt instruments/shares in Mainland China may be subject to various requirements and restrictions under the laws of Mainland China related to QFII investment and custodial risks.
Some funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
As RMB is not freely convertible, currency conversion is subject to exchange controls and restrictions. There can be no assurance that RMB will not be subject to devaluation. Insufficient amount of RMB for currency conversion or devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated class(es) of certain funds. The “Dim Sum” bond market is still a relatively small market which is more susceptible to volatility and illiquidity. Due to RMB concentration risk, the value of the funds with substantial RMB exposure may be more volatile than that of a fund having a more diverse portfolio of investments.
Some funds’ performance will be closely tied to the economic, political, regulatory, geopolitical, market, currency or other conditions in the European Economic Area and may be subject to increased liquidity, price, and foreign exchange risk.
Some funds may invest in Russia and some investments in Russian securities may be unlisted securities not dealt on a regulated market. The Russian market presents specific risks in relation to the settlement and safekeeping of securities.
Investment involves risk. Investors may expose to capital loss and should not invest solely based on the information on this website alone and should read the offering documents for details including the associated risk factors, charges and features of the funds and their share/unit classes. Past performance information is not indicative of future performance.

Manulife Global Fund

Manulife Global Fund is an umbrella fund comprising a number of sub-funds investing in equity and/or fixed income securities, each of which has a different investment objective and risk profile and may involve equity market, geographical concentration, sovereign debt, liquidity, volatility, credit downgrade, interest rate, counterparty risks. Certain investors may also be subject to the risk relating to RMB hedged share class.
The relevant distributing class of the sub-funds does not guarantee distribution of dividends, the frequency of distribution and the amount/rate of dividends. Dividends may be paid out of income, realized capital gains and/or out of capital of certain sub-funds in respect of Inc share class(es). Dividends may be paid out of realized capital gains, capital and/or gross income while charging all or part of their fees and expenses to capital (i.e. payment of fees and expenses out of capital) in respect of MDIST (G), R MDIST (G) and F MDIST (G) share class(es). Dividends paid out of capital of these sub-funds amounts to a return or withdrawal of part of the amount of an investor’s original investment or from any capital gains attributable to that original investment and may result in an immediate decrease in the net asset value per share in respect of such class(es) of the sub-funds. Fixed yield share classes pay out a pre-determined annualized fixed percentage of their NAV, which can be adjusted by the Directors with at least one month’s prior notice, do not entirely reflect the actual or expected income or performance of the Fund. These distributions may exceed the actual income, leading to capital erosion, especially during negative returns or losses, and may reduce future capital growth. A positive distribution yield does not guarantee a positive return, and the absolute distributions vary with the NAV, resulting in fluctuating monthly payouts for investors.
Certain sub-funds invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Certain sub-funds invest in securities of small and medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Certain sub-funds concentrate their investments in a single country and/or a particular industry sector are subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Certain sub-funds may invest directly in certain China A shares via Stock Connect, which may involve in risk related to Investments via Stock Connect and Mainland China investment.
Investment involves risk. The sub-funds may expose their investors to capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds and their share classes.
Each sub-fund intends to use financial derivative instruments (“FDIs”) for investment, efficient portfolio management and/or hedging purposes. The use of FDIs exposes the Fund to additional risks, including counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk.
Given RMB is currently not a freely convertible currency, payment of redemptions and/or dividend payment in RMB may be delayed due to the exchange controls and restrictions applicable to RMB. As offshore RMB (CNH) will be used for the valuation of RMB denominated Class(es), CNH rate may be at a premium or discount to the exchange rate for onshore RMB (CNY) and there may be significant bid and offer spreads and thus the value of the RMB denominated Class(es) will be subject to fluctuation. Any devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated Class(es) of certain sub-funds.

Manulife Advanced Fund SPC

Manulife Advanced Fund SPC is an umbrella fund comprising a number of sub-funds investing primarily in equity and bond securities, each of which has a different investment objective and risk level.
The sub-funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. A sub-fund may at its discretion pay dividend out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share of the respective share classes after the distribution date.
Certain sub-funds with significant exposure to Renminbi (“RMB”) bonds/equity/assets or emerging markets, may involve debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with the world's more established markets.
A bond sub-fund may hold a significant portion of assets in deposits if there are not sufficient RMB instruments for it to invest in. This may adversely affect its return and performance.
Certain sub-funds using invest directly in debt instruments/shares via QFII regime, the Bond Connect and/or the Foreign Access Regime are subject to various requirements and restrictions under the laws of Mainland China related to investment in QFII and/or China Interbank Bond Market and custodial risks.
RMB is not freely convertible and is subject to exchange controls and restrictions.
Certain sub-funds may have significant concentrated exposures to particular industry sectors and geography's, which subjects investors to concentration and equity market risk.
Certain sub-funds may invest in equities of small- and mid-capitalization companies, which can expose investors to liquidity and volatility risks, and is subject to greater risk than is customarily associated with investments in larger capitalization companies.
Investment involves risk. The sub-funds may expose to a high risk of capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds.

Manulife Hong Kong Series

Manulife Hong Kong Series (“the Series”) is an open-ended unit trust comprising a number of funds primarily investing in equities, debt securities, exchange-traded funds and/or collective investment schemes, each of which has a different investment objective and risk level.
The funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. Dividends may be paid out of capital and/or out of gross income of certain funds in respect of Inc classes, while charging/paying all or part of certain funds’ fees and expenses to/out of capital of certain funds. This represents a return or a withdrawal of part of an investor's original investment amount or capital gain attributable to that amount. Distributions will result in an immediate decrease in the net asset value of the relevant units. Class AA (RMB) Inc Hedged Unit of certain funds is subject to higher distribution risks than other non-hedged unit classes.
Certain funds may involve equity market, emerging markets, Dim Sum bond market, concentration, volatility, liquidity, credit, credit ratings, below investment grade and unrated securities, credit rating downgrading, interest rates, valuation, sovereign debt, unlisted debt securities, political and regulatory, currency, foreign exchange, derivative and structured product, hedging, and distribution risks. Certain investors may also be subject to the risk relating to RMB hedged share class..
Certain funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
Certain fund is subject to the risks relating to investment in exchange traded funds, Strategic and Tactical Asset Rebalancing Strategy (“STARS”), small- and mid-capped companies, convertible bonds and the risks associated with securitised debt instruments and investments in loss-absorption features. Certain fund is a feeder fund that invests all or substantially all of its assets in another collective investment scheme (the “master fund”) and is therefore subject to the risks of investing in the master fund.
Certain fund will not have direct investments other than cash, cash equivalents and financial derivative instruments (such as futures, options and forwards).
Investment involves risk. The funds may expose its investors to capital loss. Investors should not make investment decisions based on this material alone but should read the offering document for details, including the risk factors, charges and features of the Fund and its unit classes.