The Curious Case Of Slowing Smartphone And Pharma Exports To The US
The tariff war has yet again shown why India needs to diversify to other countries and up its manufacturing game to compete with China.
The Gist
- US tariffs have escalated from 10% to 50%, creating uncertainty and impacting various export categories.
- China, in contrast, has seen a 20% increase in its US imports, highlighting India's competitive struggles.
- Experts suggest that India's reliance on a limited number of large exporters complicates the recovery process amidst ongoing tariff challenges.
In a year marred by tariff threats, India’s export story has taken an unexpected turn. Though the US seems to have gone softer on its tariff stance with India, the rising levy of import duties in various intensities has impacted the trade numbers of H1 FY26. As India seems to lose out on exports of both tariffed and non-tariffed goods, experts point out that the country’s offerings are only one of ‘the many options’ for the US, unlike its closest competitor and neighbour, China.
Between May and September, India’s exports to the US fell by 37.5%, data from Delhi-based trade research body Global Trade Research Initiative (GTRI) showed. While some of it was expected, the damage ran deeper than tariffed goods — even to pharmaceuticals and smartphone exports, which were not a part of the duties.
While smartphone exports fell by 58%, pharma exports fell by 15.7%. This is in addition to gems and jewellery, textiles, seafood and solar exports, which saw an anticipated fall, as they were a part of the tariffs.
“There are certain items like pharmaceuticals, smartphones, where tariffs are zero in the (Donald) Trump regime. We expected that the export in this category should not fall because there is no tariff,” Ajay Srivastava, Founder of GTRI, told The Core recently in an interview. Yet, the decline of exports was highest in this category by 47%. “The fall in this category accounts for one-third of India's exports to the US.”
Who Moved My Smartphone?
Indian goods, except for some exemptions, are tariffed at 50% currently. Trump first imposed 25% tariffs in July, effective from August 1 2025. Even as the two countries were negotiating a trade deal, the US president imposed further 25% tariffs over differences on India buying Russian oil. The sudden jump spooked buyers across tariff chains, affecting exports of even non-tariffed goods.
“US traders are recalibrating their sourcing strategies amid heightened volatility, while aggressive dumping from Mexico, Brazil, and parts of South-East Asia continues to undercut pricing discipline,” Kunal Gala, Partner, Deal Value Creation at consulting firm BDO India, said, explaining the decline in smartphone exports.
Even in electronics, the pain felt by buyers and exporters wasn’t uniform. “While Apple did get a dispensation from the government in the US, other companies which export from India saw a fall,” said an expert who spoke to The Core on the condition of anonymity.
The decline in smartphone exports looks sharper as they had seen a massive 197% in the same period last year.
In the case of pharmaceuticals, Gala said the sentiment was turning cautious as global buyers fear that if trade negotiations with India lose momentum, generics could well be the next target of tariff scrutiny.
The tariffs imposed by the US, until now, were specific to branded products exported from India, but not generics. Yet, the fear has made buyers look away from India to source products. India’s generic exports crossed $30 billion in FY25, and the US accounts for over 32% of the same, as per a report by Rubix Data Sciences.
China’s Unyielding Monopoly Effect
India’s competitors, such as China, haven’t faced the same fate. China, also facing US tariffs, saw exports to the US rise up to 20%, even with restrictions applied.
Trump’s move to reduce tariffs on China to 10% has only added to India’s disadvantage.
“Whereas India's exports are coming down because of high tariffs, while our competitors like Bangladesh and Vietnam they're facing lower tariffs. China is beyond, almost beyond, the game of death. India is very much into the game,” said Shrivastava.
As Shrivastava puts it, China is a monopoly supplier in many categories that it exports to the US. While India’s exports have slipped during the period, those of China, in spite of various restrictions, have risen by 20% during the same period.
Moving Up The Value Chain
To take a leaf from China, Indian companies have to move up the value chain, with secure export markets to the US as well as others. However, to be able to have a monopoly like China, Indian companies have to make additional investments.
“Only a limited set of players, perhaps 25–30% large, well-capitalised domestic companies have the financial headroom to scale up manufacturing or R&D commitments. For the broader industry, it’s a long-gestation play that demands both patient capital and policy consistency,” said Gala, indicating that it’s a long-gestation game.
It would also require the Indian government’s encouragement in terms of policies. On the contrary, many schemes that would help small exporters have lapsed.
“One of them is the interest equalisation scheme, which allows concessional rates of loans to exporters. We had it for the past decade, but hasn’t been revived this year, when we need it the most. Even the market access initiative scheme, where the government pays small exporters to attend trade fairs abroad. It was available for the past 30 years, and this year, no money has been allocated for this scheme so far,” said Shrivastava.
India announced relief measures worth $5 billion last week for exporters hit by tariffs and unsecured loans worth $2.3 billion.
Chasing New Markets
With exports to the US being unpredictable, India has been aggressively trying to diversify. New trade lanes won’t open overnight, but India has been pushing aggressively.
The government is currently in talks with Australia for a comprehensive free-trade agreement (FTA), even as an interim one was implemented in 2022. It has already signed an FTA with the UK and has sent delegations as far as South America to generate demand.
Experts believe that for these to take shape and have an impact on the balance sheets of companies, it would take at least a year or so. “The UK–India FTA is a step in the right direction, but policy intent must still translate into on-ground execution. In reality, we are at least 12 to 18 months away from seeing any substantive commercial impact,” said Gala.
As of October, India’s overall exports were down 11.8% and the trade deficit had widened to a record high of $41.68. While the measures announced will help, till tariffs stabilise and buyers regain confidence, India's exports to the US will likely continue to suffer.
