Indian MSMEs grapple with US tariff fallout

Trump’s tariffs challenge India’s export-driven industries’ growth

Even though United States President Donald Trump has put on hold his tariffs on imports from around the world, the threat is very real and visible for thousands of Indian Micro, Small and Medium Enterprises (MSMEs), especially in electronics, auto parts and gems, which comprise a large part of Indian exports to the US.

On April 9, Donald Trump, President of the United States, imposed 26 pc reciprocal tariffs on Indian imports, sending shockwaves through export-driven industries, with gems and jewellery, auto components and electronics emerging as the most vulnerable sectors. The new tariff was part of Trump’s broadbrushed approach towards imports from around the world, putting in place tariff as high as 150 pc on some Chinese goods.

Though Trump subsequently postponed the implementation of the new tariffs by three months, experts warn of cascading effects of these tariffs on India’s employment and manufacturing competitiveness, even though pharmaceuticals are temporarily protected.

They say that the tariffs are existential threats to India’s USD 40 billion gem and jewellery sector, which accounts for 10 pc of all merchandise exports. Because of its reliance on discretionary US consumer spending, the industry is particularly vulnerable to tariff increases and concerns about a recession.

“Employment in India’s gems and jewellery segment will definitely be impacted. While EU-based luxury brands might weather higher tariffs, Indian exporters lack equivalent brand equity to absorb cost shocks,” Ashok Saigal, Co-Chairman of CII National MSME Council, tells Media India Group.

Also Read: Despite pause, Trump’s tariff threat hangs heavy over India

The 26 pc tariff, according to market analysts, may make India less competitive when compared to its Southeast Asian competitors, especially as US consumers seek best prices. According to an analysis by brokerage firm ICICI Direct, textile exporters like Gokaldas Exports and Indo Count may experience short-term hardship, but India may benefit in the long run from comparatively lower tariffs than China and Vietnam.

Another sector which is a key component of Indian exports, namely auto parts, as manufacturers of auto parts, especially Micro, Small and Medium Enterprises (MSMEs) based in Pune, Chennai and Gurgaon, are hit twice. Tariffs on direct components are painful, but the greater risk is that US auto production will decline as a result of increased input costs in global supply chains.

“Even if only 5 of 100 car components come from India, tariffs on the other 95 will suppress overall US demand. Indian exporters will face both volume reductions and price pressures as buyers negotiate discounts,” says Saigal. He also mentions that particularly at risk are businesses like Ramkrishna Forgings, which depends on the US market for 30 pc of its revenues, and Bharat Forge, which carries a 40 pc US exposure, with ICICI Direct highlighting ‘strongly negative’ outlooks for component exporters.

Also Read: Significant impact of 26 pc US tariff on Indian gem & jewellery exports: GJEPC

There is a paradox in India’s electronics exports, which are primarily iPhone shipments from Foxconn facilities in Tamil Nadu.

Saigal says that lower tariffs imposed by Trump on India, as compared to 60 pc on China, could attract redirected investments. “However, this silver cloud has a dark lining as any slowdown in US consumer tech spending would disproportionately impact India’s nascent electronics manufacturing ambitions,” he adds.

It is not just the threat of direct tariffs that Indian exporters have to deal with, many of them also face non-tariff barriers, especially for the USD 8 billion generic drug export sector which faces non-tariff obstacles despite being exempt from initial tariffs. “The Food and Drug Administration (FDA) may increase scrutiny on Indian generics to protect branded US pharmaceutical margins,” Saigal adds.

MSMEs face existential risks because they handle 60–70 pc of the exports of gems and jewellery and auto components. “Price wars with Chinese exporters and reduced US demand create a perfect storm. Government interventions through alternative market access and joint ventures are critical,” says Saigal.

Also Read: Modi to walk tightrope over tariffs in meet with Trump

Saigal says that the government has emphasised expanding Production-Linked Incentive (PLI) schemes and trade negotiations to mitigate fallout. “Proposals include lower-interest credit and enhanced export incentives to stabilise MSMEs. Meanwhile, industry leaders advocate joint ventures in third countries to bypass tariffs and counter Chinese dumping,” he adds.

As global competition intensifies, Indian MSMEs must balance innovation with strategic partnerships to survive the tariff storm. With GDP growth projections trimmed by up to 0.5 percentage points, the resilience of these enterprises will shape India’s trade trajectory in the coming years.