US President Donald Trump on Wednesday slapped India with tariffs of 26%, one of the highest rates imposed on a trading partner, despite pointing to his good personal ties with Prime Minister Narendra Modi.

The tariff on India is higher than that levied on the European Union (20%), Japan (24%) and South Korea (25%). Trump hit China with at least 54% tariffs and Vietnam with 46%.

The tariffs come even as Delhi is negotiating a trade deal with Washington, and despite the government making several concessions on Trump’s trade and immigration agenda.

Modi had visited Washington in February, soon after Trump was sworn in, when he agreed to buy more US energy and arms.

Finance ministry officials were restrained in their response to the tariff action, with minister of state for finance Pankaj Chaudhary saying that Trump might be following a policy of America first, but for Modi, it is India first.

Chaudhary said the government is “assessing” the impact of the reciprocal tariffs imposed by US.

“It is a mixed bag and not a setback for India,” an unidentified government official told the Press Trust of India on Thursday.

An analysis by Bloomberg Economics trade team estimated a 0.9% hit to India’s gross domestic product (GDP) from a blanket 26-percentage-point rise in export levies to the US over the medium term.

‘India holds competitive edge’

“The tariff will impose a notable cost barrier on Indian hardware exports to the US. However, this remains comparatively lower than tariffs levied on other Asian manufacturing hubs. India-based manufacturing still holds competitive edge, given that there is already a significant focus on scale, quality, and ‘Make in India’ incentives,” Paritosh Prajapati, chief executive officer at global fiber optics firm GX Group.

India can emerge as a preferred destination for  global brands looking to diversify supply chains away from high-tariff countries, analysts said.

“The higher tariffs on several Asian countries presents India an opportunity to strengthen its position,” Ajay Srivastava, founder of Delhi-based think tank Global Trade Research Initiative (GTRI) said, while cautioning that “gains will not accrue automatically. India needs deep reforms for enabling scale production, domestic value addition and improving competitiveness to benefit.”

India exported $77.51 billion worth of goods and services to the US, while importing merchandise valued at $42.19 billion from the US in fiscal 2023-24.

Both countries are negotiating a bilateral trade deal, with experts hopeful of sector-wise concessions on tariffs as the negotiations enter later phases.

Against this background, Srivastava said India will need strategic planning to attract foreign direct investment in textiles, garments, electronics toys, packaging, testing, and lower-end chip manufacturing to scale up domestic production and cater to markets like the US, seeking alternate import sources.

“Overall, the US’s protectionist tariff regime could act as a catalyst for India to gain from global supply chain realignments,” he said.

The relatively lower tariffs helped Indian shares outperform most regional peers on Thursday.

Shares declined after the US imposed the tariffs, but a surge in pharma firms on an exemption from duties helped cushion the blow.

At close, the Nifty 50 declined 0.35% to 23,250.10, while the BSE Sensex  fell 0.42% to 76,295.36.

Which goods attract tariffs, and which ones don’t?

Goods from India, especially steel, aluminum, and auto, will continue to face a 25% tariff, while there will be no tariffs on pharmaceuticals, semiconductors, copper, or energy products.

For the remaining products, India is subject to a baseline tariff of 10% between 5-8 April, and then the tariff will rise to a country-specific 27%.

An SBI Research report estimated that if Trump implements reciprocal tariffs, Indian exports to the US could decline by up to 3.5%.

The report, however, said that the loss in exports to the US could be squared off by stepping up exports of value-added manufactured goods and pent-up exports in services.

An analysis by Goldman Sachs estimated that increasing tariffs by the average difference in rates on all goods the US imports from India would be the easiest to implement.

The report said if the US raised tariffs on Indian goods as part of a broader tariff policy (like country-level or product-level reciprocity), it is estimated that India’s GDP growth could be affected slightly, between 0.1 to 0.3 percentage point, depending on how the US demand for Indian products reacts to the price changes.

Following Trump’s ‘Liberation Day’ Speech, as the picture of the reciprocal tariff becomes clearer, Srivastava said India might benefit from higher tariffs on other Asian countries if reforms are carried out to enable scale production, domestic value addition, and improve competitiveness.

Textile and garment sectors stand to gain

As the US has imposed 37% and 54% tariffs on Bangladesh and China, India can increase textiles and garments exports.

“The high tariffs on Chinese and Bangladeshi exports create room for Indian textile manufacturers to gain market share, attract relocated production, and increase exports to the US,” Srivastava said.

India’s strong base in textile production, coupled with lower tariffs, could drive greater global demand and new investments in the sector.

Electronics sector may also benefit

Countries like Vietnam and Thailand will likely lose cost competitiveness due to the US’s 46% and 37% tariffs in the electronics, telecom, and smartphone sectors.

“This opens a window for India, which has already begun investing in electronics manufacturing through government incentives like the Production-Linked Incentive (PLI) scheme,” Srivastava said.

India may eat into Taiwan’s chips sector

Even a partial shift of semiconductor supply chains from Taiwan due to higher tariffs (of 32%) could benefit India, if backed by adequate infrastructure and policy support, Srivastava said.

“The semiconductor space, while still dominated by technologically advanced players like Taiwan, also offers potential for India to capture parts of the value chain such as packaging, testing, and lower-end chip manufacturing,” he said.

“Similarly, sectors like machinery, automobiles, and toys—where China and Thailand currently lead—are also vulnerable to tariff-related relocation,” Srivastava pointed out.

However, to fully leverage these opportunities, India must enhance its ease of doing business, invest in logistics and infrastructure, and maintain policy stability. If these conditions are met, India is well-positioned to become a key global manufacturing and export hub in the coming years, Srivastava added.