$60 billion hit! Jefferies decodes impact of US tariffs on Indian economy

Jefferies, a global brokerage firm, has recently shed light on the economic challenges faced by India as trade tensions with the United States escalate. The key focus is on the imposition of a 50 per cent tariff by the US on Indian exports, excluding pharmaceuticals, which is predicted to have a significant impact on various sectors of the Indian economy.

The tariffs, which could result in an estimated US$55-60 billion hit to the Indian economy, are primarily targeting labour-intensive industries such as textiles, shoes, jewellery, and gems. These industries are crucial for employment in India, highlighting the broader economic ramifications of these trade barriers, the brokerage said. The imposition of tariffs has been linked to the American president’s “personal pique” over not being allowed a role in mediating between India and Pakistan, according to conversations in New Delhi, it said.

Jefferies said India’s refusal to accept third-party intervention in its conflict with Pakistan, described as a “red line,” underscores the complexity of the geopolitical issues influencing economic policies. This stance, while maintaining national sovereignty, comes at a significant economic cost. Furthermore, Jefferies highlights that nearly 25 crore farmers and related labourers depend on agriculture, which accounts for nearly 40 per cent of the workforce, underscoring the sensitivity of opening up the agricultural sector to imports.

Before the recent conflict with Pakistan, India and the U.S. were reportedly close to finalising a trade agreement. However, the killing of 26 Indian tourists in Kashmir disrupted these negotiations, leading to the current trade impasse. This sequence of events, referred to by some in the Indian capital as a “conceptual vacuum” in Washington, has further complicated the economic landscape, Jefferies said.

The global brokerage noted that the tariffs also coincide with India’s continuous purchase of Russian oil, which has become a contentious issue amidst ongoing discussions about the Ukraine conflict. The situation highlights how international diplomacy and trade policies are often intertwined. Jefferies noted that these tensions are not only economic but also strategic, as they potentially push India closer to China, a significant trading partner.

India’s import reliance on China remains substantial, with annualised imports from China reaching US$118 billion, representing 16 per cent of total imports and registering a 13 per cent year-on-year growth by July 2025. These figures illustrate India’s dependency on Chinese goods, such as solar panels, which are vital for its energy needs, it said.

In terms of market dynamics, India is navigating between the pressures of maintaining trade relations with the U.S. while managing its strategic partnership with China. The broader implications for India’s economic policies are significant, with the potential to reshape its trade priorities and alliances in the region.

Jefferies’ analysis underscores the challenges India faces in balancing its economic and strategic interests amidst shifting global alliances. The brokerage suggests that navigating these challenges will require careful diplomatic and economic manoeuvring to safeguard India’s growth trajectory in the coming years.