How New US Tariffs Could Impact India's Manufacturing Ambitions

Moody's Ratings warns that new US tariffs could hinder India's manufacturing ambitions, particularly in high-value sectors like electronics. Despite these challenges, the agency believes that India's domestic demand will remain strong. With the US being India's largest trading partner, the implications of these tariffs are significant. As India negotiates a bilateral trade agreement with the US, the future of its manufacturing sector hangs in the balance. Discover how these developments could shape India's economic landscape.

By Narendra Chaudhary Aug 4, 2025, 15:31 IST

Impact of US Tariffs on India's Manufacturing Sector

New Delhi: According to Moody's Ratings, the recent restrictions on access to the US market are likely to hinder India's manufacturing growth. However, the agency believes that domestic demand in India will remain strong despite these external challenges.

President Donald Trump has declared a 25% tariff on imports from India, effective August 7 at 9:30 AM IST. This new duty will be in addition to the existing standard import tariffs in the United States.

In addition to the import tariff, Trump has indicated a potential 'penalty' on Indian imports related to Russia, although the specifics of this penalty have not yet been disclosed.

Christian de Guzman, Senior Vice President at Moody's, noted that the new tariff rates on Indian products are significantly higher than those imposed on other major exporters in the Asia-Pacific region, where tariffs typically range from 15% to 20%.

"Limited access to the world's largest economy poses challenges for India's aspirations to enhance its manufacturing capabilities, especially in high-value sectors like electronics," Guzman stated.

The elevated tariffs also put India at a disadvantage as it competes for a larger share of trade and investment, particularly as companies look to move away from China, which faces even harsher tariff measures from the US.

Currently, India and the US are in discussions regarding a bilateral trade agreement. The US is India's largest trading partner, representing 18% of India's total merchandise exports in 2024. The USD 80 billion in merchandise exports from India to the US spans various sectors that are also key to India's overall export profile.

Guzman expressed optimism that domestic demand will remain robust, as the Indian economy is less dependent on trade compared to other large economies in the Asia-Pacific region.

"Furthermore, the positive outlook for India's services sector, which is unmatched in the region, remains secure, as services exports do not seem to be a significant issue in US-India relations," Guzman added.