India Can Rise Against The Economic Blockade

Almost five months have gone by since president Trump’s landmark April 2 announcement of reciprocal tariffs. Businesses all over the world are no wiser nor better prepared than they were on April 1, 2025.

This applies to India as much as it does world over, particularly countries that export heavily to the United States.

Businesses have been hoping all this while that we would arrive at some sort of agreement on tariffs, Rahul Mehta of the Clothing Manufacturers Association of India (CMAI) representing some 20,000 manufacturers told me on The Core Report’s weekend edition.

There are two broad streams of advice. For policy, it is about staying calm and keeping Trump happy, if you can. For business, it is now time to think of Plan B.

The Meeting In Alaska

A 25% tariff rate is not easy to match for the hundreds of thousands of small businesses across industries like apparel, seafood exports and gems and jewellery. And a 50% tariff as threatened by President Trump for continuing to buy Russian oil is an effective economic blockade.

Though he did drop hints after his meeting with Russian President Vladimir Putin in Alaska over the weekend that he may go easy on additional tariffs on India and China. But it was a hint and nothing more.

As we have seen before, it’s not to say even if the additional 25% is pulled back, it will not resurface in another form for another reason a few weeks later.

Stocks Don’t Bite The Tariff Bullet

The interesting thing is that despite all this business uncertainty world over and in India, stock markets hit record highs, led of course by Wall Street. India of course is still below its September 2024 lows and thus yet to join the party.

Indian markets are still holding out fairly well, given that earnings growth in recent quarters have disappointed and there are no star performers, industries or companies to lift the whole market. Like AI has done for Wall Street.

The market's strong standing could be reflecting something deeper.

Which is that the global economy is more resilient today than ever before and better geared to deal with Trump’s tariff tantrums, even if we may not feel so right now.

How Much Does India Trade With US?

Let's look at India for a moment. Some 70% of Indian goods exports to the US, or around $60.85 billion, are now facing a 50% tariff imposed by the US.

But an analysis by the Indian Council for Research on International Economic Relations (ICRIER) shows that the figures are just 1.56% of India’s GDP and 7.38% of total exports.

For a $3.9 trillion economy, this is a minor dent. The problem of course is that these are some of the most labour intensive industries in the country and include formal and informal employment. Which means overall growth figures, though lower than ideal, would still stay mostly on course.

Why are markets still so bullish? Incidentally, more than half the rich world’s stock markets are within 5% of their all-time high, an Economist article titled Disaster Proof Capitalism last month pointed out.

Rise Of Resilience

That’s because businesses have become more resilient and Governments have responded faster to help them and their economies in times of need.

Supply chains have become more sophisticated and adapting more smoothly even to radical changes. Thanks to all of this, since 2011, growth has continued at around 3% a year including through several crises including the 2022 invasion of Ukraine by Russia.

The only exception was the pandemic. The Economist argues the world economy has thus become impressively and increasingly shock-absorbent.

Supply chains are resilient, energy sources have become more diverse and policy making is also responsive. This year just 5% of countries are on track for a recession, according to IMF data—the least since 2007.

What about corporate earnings? In the first quarter of 2025 global corporate earnings rose by 7% year on year points out The Economist. So what is the takeaway for India? Well, India has actually shown for close to 35 years, that it responds well to crises. Or conversely, India is known to respond best only when there is a crisis.

India’s GST Rationalisation

Prime Minister Modi’s Independence Day speech with detailed references to upcoming reforms for businesses and lower goods and service (GST) tax to fuel consumption could be interpreted partly as one such response.

And there will be solutions even for India’s exporting industries.

Mehta of the CMAI argued they would surely benefit if import duties on raw materials, including fibre, were reduced. That obviously hurts local manufacturers who have managed to get and hold on to their tariff and non tariff protection for many years.

They too might find other ways to survive and compete more effectively.

Mehta also said that some large manufacturers are shifting their production to other plants in other countries which they also own and face lower tariffs. The hunt for new export markets is on in earnest, though admittedly in some cases, the US is too large to substitute. Like shrimp exports.

Other apparel makers are visiting or revisiting the domestic market and talking to some of the retail giants.

The larger point: businesses are now shaking themselves out of their stupor and focussing on solutions.

So Indian businesses with some help from the Government and policy makers can weather or at least better weather this current trade imbroglio, whether 25%, 50% or more. The global growth stars are aligned in their favour and have been for some time as The Economist points out.

Which of course does not mean we can take anything for granted, whether it is success or survival. It's just that the chances of coming out of this difficult economic phase steadier if not stronger are good and perhaps improving by the day.