Rajeev Narayan

India’s private sector has often been accused of being pampered at home and punished abroad. The latest US tariff cascade under President Donald Trump—rising from 25 to 50 percent, with warnings that the dreaded levy could climb to 70 percent—poses a tough question. Are Indian consumers and exporters paying a hefty price to keep profitability at home robust, even as global market access erodes and Indian companies are singled out for punishment?

The present spiral did not emerge out of thin air. The US tested the waters with broad-based metal duties in 2018, invoking national-security powers to slap 25 percent tariffs on steel and 10 percent levies on aluminium globally. India was not spared, and the move opened a channel for tariffs to be redeployed whenever Washington sought leverage.

The dismantling of India’s ‘Most Favoured Nation’ (MFN) access under the Generalized System of Preferences, a year later, deepened the shock, removing duty-free entry on billions of dollars’ worth of shipments, narrowing the policy space for exporters who had relied on tariff margins to compete.

2025 Whiplash is Worse

The escalation in 2025 is sharper and more political. Washington unveiled a 25 percent tariff on India as part of a push to ‘reciprocate’ trade issues and pressure partners on non-trade matters. The Indian baseline was doubled to 50 per cent, with Trump claiming this was done because India was continuing with purchases of discounted Russian crude. US officials called the add-on a ‘secondary tariff’ tied to India’s ‘Russia Policy’, not a conventional trade remedy. This is a smelly label that signals the merger of security and commerce in a new era of tariffs.

New Delhi has objected to this claim, saying Russian oil imports since 2022 were contracted “only to fan down inflation and stabilise energy security”. It has also reminded global pundits that even the US acknowledged India’s dilemma in 2022 and appeared to understand its compulsions, particularly because India remained neutral in the Russia-Ukraine conflict.

However, the US remains adamant. Analysts warn that the White House is exploring room to push the wall higher still—up to 70 per cent in certain scenarios—if diplomatic bargaining does not yield the desired Russian concessions. The fact that such a number is even in circulation underscores how far the terms of trade have shifted from spreadsheet logic to elliptical geopolitics.

The evidence of damage is no longer anecdotal. Indian policy researchers calculate that roughly two-thirds of India’s exports to the US, including textiles and apparel, gems and jewellery, auto components, and agri-exports, now stand exposed to the 50 percent tariff wall. The absolute exposure is smaller as a share of GDP, but the pain is concentrated in labour-intensive belts that anchor urban employment and small-firm value chains. “This is a jobs story as much as it is a trade story,” one research study concluded, warning that tariff disadvantages of 30 per cent or more against competitors such as Bangladesh and Vietnam are not survivable for long.

Tariffs are All Leverage

From Washington’s point of view, the tariff ladder is leverage. The US says India’s refinery-and-reexport model ‘cleanses’ embargoed Russian crude into globally tradable fuels, blunting the West’s wartime squeeze. Whether US pressure works remains to be seen. That’s because oil markets are deep, spot flows are slippery, and India’s energy calculus mixes inflation control with refinery utilisation and the politics of pump prices.

What does this bode for private-sector profitability? A lot. For a decade, many of India’s listed champions have derived margin comfort from protected home markets, administered prices in pockets, and tariff or non-tariff shields on inputs. While that insulation fosters balance-sheet strength, it also dulls the urgency to climb the complexity ladder. When a shock like a 50 percent US tariff lands, companies with a thin presence discover that they were relying on domestic cushions more than competitiveness. Profit pools look fine until exports are threatened.

Then, there is the split-screen. On the one side, corporate earnings hold up thanks to resilient domestic demand, better formalisation, and the pricing power of a few players. On the other hand, export engines sputter… for instance, diamond-polishing in Surat faces cancelled orders, apparel clusters in Tiruppur and Noida see margin compression, and seafood exporters cry foul over market-share losses as compliance costs climb. A few electronics exporters remain insulated by company-specific carve-outs and incentive structures, but they are the exception, not the rule.

No Clear Winners Here

For Washington’s policy community, the view is sobering. The Peterson Institute says there will be unavoidable growth and inflation trade-offs even for the US, especially if targeted economies retaliate or route around US markets. “Tariffs are a tax,” one report said. In a world of fractured supply chains, taxes imposed for politics can boomerang through prices and investment; in the longer run, nobody will win the tariff war.

However, Indian economists warn against fighting escalation with fire. A former World Bank analyst says India should avoid an emotional tit-for-tat and instead channel the shock into a wider diversification and reform push. “Retaliation is cathartic, not strategic,” he says, calling for deeper integration with alternative markets and accelerated domestic easing of logistics, contract enforcement, and tariff complexity.

If 70 per cent tariffs happen, the centre of gravity would shift. The cost shock would be too large for most to absorb, and the politics of protection at home would face tough arithmetic. The more India protects domestic profit with barriers and administered costs, the less resilient its firms will become if the world turns hostile. A mirror image appears in Washington. The more tariffs are used as a catch-all instrument for foreign policy, the less precise they will become, harming allies, consumers, and eventually the credibility of economic statecraft.

What is a Solution?

Where does this leave the debate over whether high US tariffs are the price India will pay to protect private profitability at home? The truth is tangled. Tariffs are being used because the US is fusing trade, energy security, and geopolitics into one lever, and because India has prioritised domestic cushions over relentless international competitiveness. Profit protection at home is not the sole cause of tariff punishment abroad, but it has left too many firms vulnerable.

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The choice now is between doubling down on shelters or building shock absorbers. India can preserve profits by deepening moats of efficiency—cheaper logistics, lighter regulation, faster courts, smarter customs—rather than protectionism. It can engage Washington issue by issue, offer narrow and verifiable concessions where they serve Indian interests, and insist on equally narrow and verifiable tariff relief in return. It can also keep widening its trade options elsewhere to ensure that no single tariff wall, however tall, can wall off India’s growth story.

The writer is a veteran journalist and communications specialist.