Introduction
When a global trade powerhouse, the United States, imposed a staggering 50% tariff on Indian products, it rattled the core of a $48.2 billion export sector accounting for 18% of India's total exports and 2.2% of its GDP. Announced on August 27, 20251, by President Donald Trump as retaliation for India's energy relationships with Russia, this action doubled the previous 25% tariffs has been dubbed as an economic "earthquake" by experts, threatening to inflict up to 70% export losses in critical industries and a 0.3% reduction in GDP. For countless workers in India's textile centres and jewellery production facilities, it's a storm that could disrupt their livelihoods. However, within this turmoil lies an opportunity for change. Can India transform this trade setback into a catalyst for resilience and growth? By harnessing legal expertise, innovative business strategies, Prime Minister's Swadeshi vision, and forging new trade agreements with the UK and EU, India is set not only to survive the upheaval but to emerge even more robust.
The Hard- Hitting Sectors
The tariffs hit at the heart of India's export sector, focusing on labour-intensive industries that drive employment and economic growth. Textiles and apparel, a formidable $10.3 billion sector representing over 35% of exports destined for the U.S., are projected to experience a staggering 70% drop in shipments2. Small and medium enterprises (SMEs), operating on incredibly tight margins, find it difficult to cope with even a 10-15% increase in costs, putting them at risk of significant layoffs. The gems and jewellery industry, with an annual worth of $8 billion, is facing similar downturns, as industry leaders predict the loss of 1,75,000 jobs due to U.S. buyers shifting their focus to competitors such as Thailand. Seafood (particularly shrimp from Andhra Pradesh), leather products, and carpets from Uttar Pradesh are losing market share to lower-tariff competitors like Vietnam and Bangladesh. The chemicals and auto components sectors are experiencing partial disruptions, which are unsettling supply chains. However, there are some bright spots: pharmaceuticals and electronics are exempt from tariffs, thus protecting India's 50% share of the U.S. generics market and boosting technology manufacturing advancements, including Apple's expansion. Steel, aluminium, and copper continue to be subject to 25% duties. Nevertheless, with 55-60% of U.S. exports impacted, experts anticipate a 0.3% decrease in GDP for FY 2025-26, slightly mitigated by robust domestic demand and the services sector. Businesses need to move quickly adjusting costs, reconfiguring supply chains, and exploring new markets to remain viable.
Legal Framework for Mitigation
India's approach must be anchored in a strong legal framework that harmonises international commitments with national priorities. Within the WTO, India has the option to invoke Article XXIII of GATT regarding the nullification or impairment of benefits, initiating consultations and possibly implementing retaliatory tariffs if the U.S. actions are found to be inconsistent. In the past, India effectively contested U.S. steel tariffs in 2019, achieving concessions valued in the billions. A similar panel could contend that the 50% tariffs surpass bound rates outlined in India's WTO schedule, justifying compensation or the suspension of concessions.
On the domestic front, the government can utilise the Atmanirbhar Bharat Abhiyaan (Self-Reliant India Campaign), which is embedded in policy through the Production Linked Incentive (PLI) Scheme as part of the Industrial Policy Resolution. This initiative enables subsidies and tax rebates to enhance local production, in alignment with the WTO's Agreement on Subsidies and Countervailing Measures (ASCM), provided they remain non-specific. Furthermore, the Foreign Trade Policy 2023 underscores the importance of export diversification, offering a legal foundation for incentives such as the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, which reimburses embedded taxes on exports.3
Retaliatory actions, sanctioned under Section 8A of the Customs Tariff Act, could be directed at U.S. imports like soybeans or aircraft, reflecting India's 2018 reaction to previous U.S. tariffs. Nonetheless, these measures must be proportional to prevent escalation, in accordance with WTO safeguards. Bilateral discussions within the India-U.S. Trade Policy Forum could also result in exemptions, referencing the 2023 resolution of six WTO disputes. These legal mechanisms establish a basis for more extensive strategies, ensuring compliance while protecting economic interests.
Swadeshi Duty
A fundamental aspect of India's offset strategy is the shift towards domestic markets, reinforced by Prime Minister's focus on "Swadeshi" (local products) during his 79th Independence Day speech on August 15, 2025. In a 103-minute address from the Red Fort which was the longest of his time in office, PM encouraged citizens to adopt Swadeshi not merely out of necessity but as a patriotic duty, urging shopkeepers and vendors to display signs promoting local products and establishing "Vocal for Local" as a shared principle4. He associated this with Atmanirbharta, detailing aspirations for self-sufficiency in industries such as manufacturing and agriculture, and introduced ambitious initiatives aimed at achieving Viksit Bharat (Developed India) by 2047.
From a legal perspective, this aligns with India's Consumer Protection Act, 2019, which can encourage the labelling and promotion of indigenous products, nurturing a "Buy Indian" mindset. The government could revise the Public Procurement (Preference to Make in India) Order, 2017, to favour local suppliers in government contracts, enhancing domestic demand for textiles and apparel. Reports from the Times of India illustrate how such transformations could mitigate economic shocks by bolstering domestic consumption, with experts proposing two main strategies: stimulating internal markets via GST reductions on affected items and offering PLI extensions to struggling SMEs.
For example, in textiles, shifting production to India's rapidly growing e-commerce and retail sectors could compensate for losses in the U.S., backed by the National Technical Textiles Mission. Likewise, gems and jewellery companies could capitalise on the increasing domestic luxury market, supported by hallmarking regulations under the Bureau of Indian Standards Act. By incorporating Swadeshi into legal incentives such as tax credits for local sourcing under the Income Tax Act, this strategy not only mitigates the impact of tariffs but also fosters long-term resilience, potentially decreasing reliance on imports and generating employment opportunities.
Diversifying Trade Through Agreements
Trade diversification has emerged as a crucial legal strategy, utilising FTAs to redirect exports. India has successfully concluded a Comprehensive Economic and Trade Agreement (CETA) with the United Kingdom, which was signed on July 24, 2025, following the conclusion of negotiations in May5. This landmark agreement provides tariff-free access to British markets for the majority of Indian products, anticipated to elevate bilateral trade by £50 billion and create government procurement opportunities valued at $38 billion. From a legal standpoint, it adheres to WTO's Article XXIV regarding FTAs, permitting preferential tariffs without the necessity of Most Favoured Nation (MFN) status extension.
For the European Union, discussions regarding a comprehensive FTA are progressing towards completion by the end of 2025, as confirmed in statements made in May 20256. Given that the EU is India's largest trading partner (€124 billion in 2023), the agreement could remove duties on 90% of goods, favouring sectors such as textiles, pharmaceuticals, and agricultural products. Geopolitical alignment, particularly shared concerns regarding China, is expediting this process; External Affairs Minister has indicated feasibility by the end of 2025.
In addition to these efforts, India can further expand under existing FTAs with ASEAN, Japan, and Australia, as recommended by industry associations. Legal support mechanisms include the Trade Infrastructure for Export Scheme (TIES) aimed at improving logistics and the remnants of the Merchandise Exports from India Scheme (MEIS). Diversification also entails value addition, such as the domestic processing of raw gems under the Special Economic Zones Act, 2005, to qualify for preferential treatment. These FTAs not only mitigate losses from the U.S. market but also strengthen India's bargaining power in future bilateral negotiations.
Conclusion
The U.S. 50% tariffs present a significant hurdle, yet India's reaction, a dynamic combination of WTO disputes, Swadeshi-inspired local development, and strategic FTAs with the UK and EU offers a promising outlook. Under PM's vision for a Viksit Bharat by 2047, India is not merely weathering the storm; it is constructing a more robust, self-sufficient economy that flourishes amidst challenges. This goes beyond mere survival, it could serve as a roadmap for success.
Footnotes
1 Jones, C., & MacRae, P. (2025, August 29). Trump imposes 50% tariff on India as punishment for buying Russian oil. The Guardian.
2 Bao, A. (2025, August 27). India's $434 billion merchandise exports engine: What's at stake as Trump's 50% tariffs kick in. CNBC.
3 TOI Business Desk. (2025, August 27). How can India offset impact of Donald Trump's tariffs? 'Two broad options' to absorb shocks - explained. The Times of India.
4 Major announcements by PM during his I-Day address. (n.d.).
5 India and UK sign Comprehensive Economic and Trade Agreement (CETA). (n.d.).
6 European Parliament. (n.d.). EU - India FTA | Legislative train schedule.
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