As of January 2026, there is no comprehensive US–India trade deal in place. Negotiations remain stalled, and the situation worsened after the US imposed 50% tariffs on select Indian goods in August 2025. This includes a 25% base duty plus an additional 25% penalty linked to India’s Russian oil purchases.
For Indian manufacturers, especially exporters, this has been less of a policy dispute and more of a balance-sheet shock.
The Immediate Shock: Why the Tariffs Hurt So Much
1. Export Competitiveness Took a Direct Hit
A 50% tariff doesn’t nibble at margins. It blows them up.
- Auto components and engineering goods became instantly uncompetitive in the US market
- Export volumes to the US fell an estimated 40–50%, particularly in auto OEM supplies
- Several US automakers paused or deferred fresh sourcing contracts from Indian suppliers, including ACMA-member firms
Even firms with long-standing buyer relationships found themselves priced out overnight.
2. Sectors Most Exposed
Some industries had more skin in the US market than others.
- Auto components: The hardest hit, with order deferments and slower H1 FY26 growth
- Textiles and apparel: Already dealing with thin margins and Asia-wide competition
- Pharmaceuticals: Select generics and formulations saw pressure, despite India’s scale advantage
- Engineering goods: Capital goods and precision parts lost pricing parity
The ripple effect spread across logistics, MSME vendors, and ancillary units tied to these exporters.
3. Supply Chains Under Strain
Beyond lost orders, manufacturers faced a structural squeeze:
- Higher landed costs reduced buyer appetite
- Imports began rising faster than exports, widening the trade deficit
- Inventory cycles lengthened, locking up working capital
For MSME exporters, this wasn’t just a slowdown. It was a liquidity stress test.
How Manufacturers Are Adapting
To their credit, Indian firms didn’t wait for diplomats to fix the problem.
1. Export Diversification Is Working
While US exports fell sharply, non-US markets told a different story.
- Overall exports rose ~20% YoY in November 2025, driven by Europe, Middle East, Africa, and ASEAN
- Firms leveraged existing FTAs and explored newer trade corridors
- Value chains in electronics, chemicals, and light engineering began shifting away from single-market dependence
In short, exporters stopped putting all their containers on one ship.
2. PLI Schemes Are Softening the Blow
Government-backed Production Linked Incentive (PLI) schemes emerged as a crucial shock absorber.
- ₹1.76 trillion in investments committed across 14 sectors
- Auto components, electronics, and specialty manufacturing benefited most
- Incentives helped firms retool plants, improve scale, and target alternative markets
PLI didn’t replace lost US demand, but it bought time and optionality.
3. The Rupee Gave Partial Relief
The rupee depreciation wasn’t planned policy, but it helped.
- Currency movement offset roughly 10–15% of the tariff impact
- Export realizations improved marginally in non-US markets
- However, it couldn’t neutralize a 50% duty wall in the US
Think of it as a cushion, not a cure.
What’s Still on the Table
Trade Negotiations Aren’t Dead, Just Narrower
While a full trade deal remains elusive:
- A services and digital trade pact is reportedly close to announcement
- This could benefit IT, GCCs, fintech, and digital exports, even if goods remain contested
For manufacturing-heavy exporters, though, relief will likely come from market diversification, not Washington.
Impact Snapshot
| Impact Area | Effect | Mitigation |
| Auto Components | Orders deferred, H1 FY26 growth slows | PLI support, rupee cushion |
| Overall Exports | 40–50% drop to US | 20% YoY rise via non-US markets |
| Investments | Deal uncertainty delays decisions | ₹1.76T PLI-driven inflows |
The Bigger Picture
The US tariff shock exposed a hard truth: export concentration is a strategic risk.
While the short-term pain is real, the long-term response could make Indian manufacturing more resilient, diversified, and policy-aligned. Infrastructure spending, GST process upgrades, and domestic demand growth are quietly improving competitiveness, even as global trade turns more fragmented.
In 2026, the winners won’t be those waiting for a trade deal. They’ll be the ones who adapted fast, rethought markets, and treated disruption as a forcing function for scale and resilience.
