Indian exports to the U.S. slump 37.5% amid steep tariffs; crisis across manufacturing and labour-intensive industries

Introduction: a sudden export collapse

The export engine of India has been jolted. A recent analysis by the think-tank the Global Trade Research Initiative (GTRI) indicates that India’s shipments to the United States — historically its largest goods export destination — declined by a staggering 37.5 % between May and September 2025. This sharp fall comes amid a dramatic rise in U.S. tariffs on Indian goods, and coincides with broader global trade and manufacturing headwinds facing Indian industries.

According to the analysis, shipments to the U.S. dropped from approximately US$8.8 billion in May to about US$5.5 billion in September. The contraction is broad-based, affecting key sectors such as smartphones, pharmaceuticals, gems & jewellery, textiles and solar-panels. The downturn marks one of the steepest short-term export reversals in recent years.

This crisis arrives at a delicate moment for India’s industrial and export policy. The nation has pursued a strategy of manufacturing growth, export diversification and rising share in global value chains, but the data signals that vulnerabilities remain. The implications span employment, regional industry clusters, trade diplomacy and macro-economic policy.

Understanding the tariff shock: what happened?

The tariff escalation begins earlier in the year. The United States, under its latest policy regime, imposed sweeping additional duties on Indian goods: initial duties of 10 % in April, elevated to 25 % by early August and reaching 50 % on many product lines by late August. Indian commentary links the tariff step-up to alleged continued Indian oil purchases from Russia and other strategic concerns.

The GTRI report highlights that previously tariff-free products — which accounted for nearly a third of India’s U.S. shipments — recorded the sharpest drop: a 47 % fall from US$3.4 billion in May to US$1.8 billion in September. This suggests that even categories that had enjoyed preferential or zero-duty access are now under intense pressure.

Smartphones and mobile electronics, once a shining star ofIndian export growth, collapsed by 58 % in the five-month period — from US$2.29 billion to US$884.6 million. Pharmaceutical exports dropped by about 15.7 %. Labour-intensive sectors such as textiles, yarn/fabrics, garments and home-textiles posted a 33 % decline—while gems & jewellery slid nearly 59.5 %.

Sector-wise breakdown and reasons

Smartphones & electronics: India’s smartphone export sector had posted surging growth through 2023–24 and early 2025. The sudden reversal reflects both tariff headwinds and perhaps a slide in competitiveness or demand in the U.S. market. The report flags that the monthly figure dropped steadily: US$2.0 billion in June → US$1.52 billion July → US$964.8 million August → US$884.6 million September.

Textiles, apparel, home-textiles: These segments employ large numbers of workers, especially women and in smaller units. With a one-third export decline to the U.S., the labour risks are substantial—units in Gujarat, Tamil Nadu, Andhra Pradesh and other textile hubs are now under pressure.

Gems & jewellery: Indian gems and cut-polish sectors, anchored in Surat, Mumbai and Jaipur-regions, faced a near 60 % crash in U.S. exports. Buyers are reportedly shifting to Vietnam, Thailand and other cost-efficient hubs. The loss of U.S. market share may be more enduring than the short-term dip.

Solar-panels & renewable-exports: Shipments of solar panels to the U.S. fell 60.8 % (US$202.6 million → US$79.4 million). India’s ambition to capture the green-exports wave may be undermined. GTRI notes that India appears less competitive compared with China (tariff ~30 %) and Vietnam (~20 %) for those goods.

Metals, auto-parts & industrial goods: While subject to uniform duty rates, these still declined — aluminium (-37 %), copper (-25 %), auto-parts (-12 %), iron/steel (-8 %). The report suggests some of this reflects weaker U.S. industrial demand rather than purely tariff policy, but for India the outcome is still stark.

Geopolitical and trade-policy context

This export slump cannot be divorced from the wider geopolitical context. The U.S.–India trade relationship has been under strain. The new duties flow from U.S. concerns over India’s trade practices, oil purchases from Russia, and perhaps leverage in Indo-Pacific supply-chain realignment. India finds itself simultaneously seeking diversification, but still heavily reliant on the U.S. market for many manufactured goods.

India is in bilateral discussions with the U.S., including on trade deals or partial arrangements. But the immediate tariffs show that the U.S. is willing to deploy steep measures—and India’s exports have proved vulnerable. In parallel, India’s pivot towards other markets such as Africa, Middle East, Latin America and ASEAN is underway, but has not yet substituted for the loss of the U.S. destination.

Domestic policy and manufacturing implications

For India’s manufacturing policy, the findings are a wake-up call. Several aspects are highlighted:

• Cost competitiveness: With neighbouring countries facing lower tariffs in the U.S., Indian exporters may need to revisit cost, logistics and value chain placement.
• Scale and technology: The deep drop in smartphone, solar and electronics exports suggests India must push beyond “assembly” to value-added local manufacturing, localisation of components and stronger supply-chain integration.
• Employment risk: Labour-intensive sectors such as textiles and gems are now under significant stress. This may affect millions of workers and ripple into regional employment hubs.
• Export diversification: India must accelerate redirection of exports to non-U.S. markets faster—and deepen free trade agreements and supply network links.
• Export finance and support: GTRI recommends enhanced interest-equalisation schemes, duty remission fast-tracking, emergency credit lines for MSME exporters and government coordination.

Impact on MSMEs and regional clusters

MSMEs are the backbone of India’s export manufacturing—particularly in textiles, apparel, gems, leather and small electronics. With falling U.S. orders, many units face liquidity stress, shrinking margins and possible layoffs. Clusters in Surat (gems), Tiruppur (textiles), Coimbatore (apparel), and the hinterlands of Haryana, Maharashtra and Gujarat may suffer disproportionately.

Regional employment in states like Tamil Nadu, Gujarat, Karnataka, Uttar Pradesh and Rajasthan may therefore see a direct impact. States must now coordinate export-oriented policy response—skills regeneration, retooling, access to credit, and shift to alternative markets.

Macro-economic implications and risks

The export slump also affects the macro-economic outlook. Exports underpin growth, provide foreign-exchange earnings, support manufacturing GDP contribution and jobs. A weakening export engine may reduce India’s growth momentum, especially at a time when global growth is modest and inflation remains sticky.

Furthermore, a fall in exports could widen trade deficits, hurt the rupee, raise import-dependency pressure and reduce investor confidence. While India has strong domestic demand, manufacturing growth has been slower compared to services; renewed export shocks may dampen manufacturing impetus further.

Alternative markets and diversification strategy

The silver lining lies in Indian data pointing to diversification. An analysis showed that in January-September 2025, marine exports rose 15.6 % year-on-year to US$4.83 billion, driven by demand in non-U.S. markets: Vietnam (up 100 %), Belgium (73 %), Thailand (54 %). Textile exports to new destinations such as Peru, Nigeria, Spain, Egypt also rose. These show India is realising the need to widen its market base.

But the pace of diversification remains slower than required. While mitigations are underway, alternate markets may not absorb lost U.S. volumes in the short term; nor do they offer the same value or margins. Policy efforts need to accelerate FTAs, inbound investment for export hubs, integrated supply chains, and logistics connectivity.

Responses from government, industry and exporters

In brief comments, exporters report concern. Many describe order cancellations, screening delays at U.S. ports, margin squeezes, and shifting buyer sourcing to Vietnam, Thailand and Mexico. They warn of job losses, stretched finance, and declining confidence.

The government is reportedly preparing policy responses: enhanced production credit links, targeted export-incentive schemes, revision of duty remission procedures, and trade-mission intensification to new markets. Further, there are suggestions to negotiate relief with the United States—either tariff roll-backs or phased schedules.

What happens next: outlook and scenarios

Looking ahead, three broad scenarios may play out:

• • Worst-case: Tariffs persist or increase, U.S. demand remains weak, China and Vietnam capture India’s market share permanently, exports slump further, manufacturing growth stagnates.
  • Middle-case: India stabilises export losses, shifts significant volumes to alternate markets, domestic manufacturing resilience improves, but recovery is slow and jobs are under stress.
  • Best-case: India secures relief from U.S., or global demand revives, supply-chain realignment favours India, manufacturing climbs higher-value segments, and exports return to growth.

The speed of government response, industry restructuring, market diversification and global demand revival will determine which path India follows.

Conclusion: a wake-up call for export India

The 37.5 % fall in Indian exports to the U.S. between May and September 2025 is a stark signal—not just of tariff shock but of deeper systemic fragilities. For a country aspiring to become a global manufacturing hub, this moment demands urgent strategic recalibration.

Export-dependent jobs, regional industry clusters and government ambitions all face risk. Yet this crisis also offers an opportunity: to deepen manufacturing sophistication, build resilient supply chains, diversify markets aggressively and convert policy ambition into structural change.

India’s export story may still be strong, but its foundations must now evolve. The window is narrow. The next twelve to eighteen months will be critical.