Why America still cannot shake India’s export machine

By T Neelakantan Aiyers

Despite the tariff shocks unleashed by Donald Trump, Indian exports to the United States have proved remarkably resilient. New trade agreements with Britain, the EU, Oman and New Zealand are giving India more options—but not yet replacing America as its most important export market.

There was a moment when Donald Trump’s tariff offensive appeared capable of fundamentally changing the geography of Indian trade. The United States had imposed tariffs that, on some Indian products, reached an extraordinary 50%. Exporters of garments, gems and jewellery, machinery, home décor and other labour-intensive products suddenly faced a brutal arithmetic: either absorb the tariff, cut margins, raise prices for American consumers or find another market.

Yet the expected collapse in Indian exports to America has not materialised.; India has begun diversifying aggressively into Europe, Britain, the Gulf, Oceania and other markets, but the United States remains the country’s single largest export destination. About one-fifth of India’s merchandise exports still go to America, a remarkable level of dependence given the tariff upheaval. Recent Commerce Ministry data show that the US remains India’s top export market even as overall Indian exports have accelerated.

From 50% shock to 18% relief—and now 10% The tariff story itself has been extraordinarily complicated. Under the framework announced in February, Washington reduced reciprocal tariffs on India from 25% to 18% and removed an additional 25% levy that had taken the effective burden on some products to 50%. For roughly $30.94 billion of Indian exports, tariffs were reduced from 50% to 18%, while another $10.03 billion received zero additional reciprocal duty.

That provided a substantial breathing space to Indian exporters. But the tariff landscape changed again after the US legal and policy shifts surrounding Trump’s reciprocal tariff regime. From July, Indian exports were placed in a 10% additional Section 301 tariff tier linked to Washington’s investigation of forced-labour-related trade practices.

There is an important qualification: it is inaccurate to describe this as a universal flat 10% tariff on every Indian product. The additional 10% applies to the covered portion of India’s exports and is on top of normal US tariff rates. Around 45% of India’s exports to the US remain outside the new additional duty, including generic pharmaceuticals, smartphones and certain other products; steel, aluminium and auto parts covered by separate Section 232 measures are also treated separately. The remaining roughly 55% face the additional 10% levy.

That distinction matters because India’s export resilience is partly explained by what America has chosen not to tariff. The numbers tell the story; India’s merchandise exports to the US were already worth about $86.35 billion in 2024. America’s importance has remained remarkably persistent even as India’s total export machine has expanded. India’s combined merchandise and services exports reached a record $863.1 billion in FY2025-26, comprising about $441.8 billion of merchandise exports and $421.3 billion of services exports.

The momentum has continued into the current financial year. During April-June 2026, India’s merchandise exports rose nearly 16% to $129.32 billion, while merchandise and services exports together reached $232.73 billion, up 11.37% year on year. By July, merchandise exports had reached a monthly record of $44.24 billion, up 19.6% from a year earlier.

The striking point is that this expansion has occurred while American tariffs have been changing almost month by month. There has certainly been pain. India’s exports to the US fell 16% to $26.2 billion during March-May 2026, from $31.3 billion in the comparable period, according to an analysis of trade data. Labour-intensive sectors such as diamonds, jewellery and shrimp were particularly vulnerable. But that is very different from a structural collapse. The US market remains too large, too affluent and too deeply integrated into Indian supply chains for exporters to abandon it overnight.

Why American buyers continue to buy from India; The simplest explanation is competitiveness. A tariff raises the landed price of an Indian product. But if the Indian product remains cheaper, better or more reliable than alternatives from China, Vietnam, Bangladesh, Mexico or elsewhere, the American importer may still buy it.

India also possesses advantages that cannot be reproduced simply by changing the country of origin. Generic pharmaceuticals are a prime example. Indian drugmakers are deeply embedded in the US healthcare supply chain. Electronics and smartphone manufacturing have expanded rapidly. Engineering goods, petroleum products, chemicals and technology-related exports have become increasingly important.

Indeed, three major categories—smartphones, pharmaceuticals and petroleum products—accounted for more than $31 billion of Indian exports to the US in FY2025-26, with significant portions outside the latest Section 301 tariff. That is the first reason the tariff strategy has not produced the expected rupture. The second is that American companies themselves have an interest in keeping Indian suppliers competitive.

A tariff paid at the border is ultimately part of a commercial chain. Importers, wholesalers, retailers and consumers all have to decide how much of the additional cost they can absorb. A tariff can therefore hurt the exporter—but it can also raise costs for American businesses and consumers.

India responds with a second strategy: diversification; New Delhi’s answer has not been to choose between America and the rest of the world. It has been to pursue both. The most significant development is India’s accelerating network of trade agreements.

The India-UK Comprehensive Economic and Trade Agreement came into force on July 15. It provides zero-duty access for roughly 99% of Indian exports to Britain, covering nearly the entire value of Indian goods exports. Bilateral trade was worth about £48 billion in 2025, giving Indian exporters a substantial new market at precisely the time American trade policy has become unpredictable.

Then there is Europe. The recently concluded India-EU free trade agreement, once ratified, has the potential to become one of India’s biggest export diversification opportunities. EU-India goods and services trade reached about €185 billion in 2025. The EU describes the agreement as the most ambitious India has concluded, particularly in tariff liberalisation and rules governing non-tariff barriers.

The Gulf is another piece of the puzzle. The India-Oman CEPA, effective from June 1, gives India duty-free access covering 99.38% of its exports to Oman by value. Bilateral trade reached $11.18 billion in FY 2025-26, and early evidence is encouraging: exports across tariff lines covered by the agreement rose sharply in June.

New Zealand has also joined the diversification map. The India-New Zealand FTA, signed in April, provides duty-free access for 100% of Indian exports once it enters into force and includes a proposed $20 billion investment commitment from New Zealand.

These agreements are more than diplomatic trophies. They create alternative destinations for Indian textiles, leather, footwear, engineering goods, pharmaceuticals, processed foods, chemicals, gems and jewellery and other employment-intensive products.

But diversification does not mean abandoning America; This is where the Indian strategy differs from the instinctive interpretation of a trade war. New Delhi is not trying to replace America with Europe. It is trying to make sure that America is no longer the only major growth engine available to Indian exporters. (IPA Service)