Strategies for Evading Trump's Tariffs
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August 13, 2025
The recent US tariffs on Indian exports have raised concerns for several key sectors, including gems and jewellery, garments, pharmaceuticals, petrochemicals, and machinery. These tariffs, which can reach up to 50%, are expected to make Indian products more expensive and less competitive in the US market.
Gems and Jewellery
The gems and jewellery sector, which accounts for about 25% of India's diamond jewellery exports to the US, is particularly vulnerable. The increased tariffs will put pressure on exports due to higher costs for US importers and consumers, potentially dampening demand. This sector, along with garments and machinery, has already felt significant pressure since the tariffs were imposed.
The Veblen effect, where higher prices increase the desirability of a product due to its status signaling, influences the demand for gems and jewellery in the US consumer market. However, for the broader market, significant tariff-related price increases may suppress demand by making gems and jewelry less affordable, especially among middle-income consumers.
Garments
Small and medium enterprises (MSMEs) in the garment sector are likely to face a competitiveness loss due to the US tariffs. There is a potential shift towards competitors with lower tariffs, such as Vietnam and Bangladesh, particularly for textiles, garments, and leather goods.
Pharmaceuticals and Petrochemicals
Interestingly, the tariffs remain at 0% for the pharmaceutical and petrochemical sectors, so they might be less affected directly by the tariffs. However, they could still face indirect effects from broader trade tensions and currency fluctuations.
Machinery
The impact on the machinery sector is expected due to the tariff increase, with export volumes potentially declining.
In summary, while the US tariffs raise costs and challenge Indian exports, the Veblen effect may soften the demand decline for luxury goods like gems and jewellery among high-end buyers but not enough to offset the overall negative tariff impact on broader market demand.
India, with an unmatched dominance in cut and polished diamonds (90% by volume, 60-65% by value), should focus on enhancing competitiveness in targeted sectors, such as garments, gems and jewellery, pharmaceuticals, petrochemicals, and machinery. This can be achieved through policy support, innovation, and global outreach to reinforce India's competitive edge in these sectors.
[1] Ghosh, A. (2025). Impact of US Tariffs on Indian Exports: A Sectoral Analysis. Observer Research Foundation. Retrieved from www.orfonline.org/research/impact-of-us-tariffs-on-indian-exports-a-sectoral-analysis/
- The US tariffs on Indian exports have sparked concerns in several industries, particularly gems and jewellery, garments, pharmaceuticals, petrochemicals, and machinery, as they may make Indian products less competitive.
- The gems and jewellery sector, which comprises about 25% of India's diamond jewellery exports to the US, is vulnerable to these tariffs, as they could increase costs for importers and consumers, potentially dampening demand.
- Small and medium enterprises (MSMEs) in the garment sector may face a competitiveness loss due to these tariffs, potentially leading to a shift towards lower-tariff countries such as Vietnam and Bangladesh.
- While the tariffs remain at 0% for the pharmaceutical and petrochemical sectors, they could still face indirect effects from broader trade tensions and currency fluctuations.
- The tariffs are expected to impact the machinery sector, with export volumes likely to decline due to the tariff increase.
- Although the Veblen effect may soften the demand decline for luxury goods like gems and jewellery among high-end buyers, it may not be enough to offset the overall negative impact on broader market demand.
- To enhance competitiveness in targeted sectors such as garments, gems and jewellery, pharmaceuticals, petrochemicals, and machinery, India should focus on policy support, innovation, and global outreach to reinforce its competitive edge.
