US PRESIDENT Donald Trump’s decision to slap a punitive 50pc tariff on certain Indian imports — doubling the previous rate — has stunned South Asia’s largest economy.

The additional 25pc marks a sharp escalation in Washington’s trade offensive against New Delhi, which is a member of several US-led economic and security alliances. The trigger appears to be India’s continued purchase of cheap Russian oil and its reluctance to open its market to American agricultural products. The move makes India the most heavily taxed US trading partner in Asia. Globally, it joins Brazil at the top of the Trump administration’s tariff list.

Unless New Delhi can broker a breakthrough in the ongoing trade talks before the new levies take effect later this month, the impact on India’s economy can be severe. Moody’s estimates that India’s real GDP growth could drop by 0.3 percentage points from its current forecast of 6.3pc for the fiscal year ending March 2026.

A BBC report notes that nearly all of India’s $86.5bn in annual goods exports to the US could become commercially unviable if the tariffs remain in place, with Indian exporters warning they cannot absorb more than a 10-15pc increase in tariff costs. India’s hopes of expanding bilateral trade with the US from $190bn to $500bn now appear unrealistic.

However, the consequences of the move go beyond India’s export sector. The levies risk derailing India’s ambition to develop its manufacturing base, particularly in sectors such as electronics. Japanese brokerage firm Nomura likens the effect to a ‘trade embargo’, warning of a sudden stop in affected export flows. In the long term, the fallout may extend to investment flows.

When commercial and other factors dim a country’s appeal as a manufacturing hub, it is inevitable that others will step in to fill the vacuum. The question then arises: will Pakistan’s trade benefit from the high tariffs imposed on India’s import? In theory, yes. Pakistan’s exports to the US face lower tariffs than countries like Vietnam and Bangladesh. And the development could open up space for manufacturers, particularly in textiles and clothing.

In practice, however, the odds are stacked against us. Pakistan remains constrained by chronic dollar shortages, an unfriendly business climate, policy unpredictability, an underdeveloped industrial infrastructure, and high costs of doing business driven by expensive energy and limited access to raw materials.

Pakistan may want to benefit from this opening in the American market and attract FDI in export-oriented industries but without acting quickly to implement serious policy reforms, cut red tape, ensure policy stability and build investors’ confidence regarding the security of their capital, it will not be able to do so.

The global supply chain shift — accelerated by President Trump’s tariffs — is already underway. Without credible policy reforms, Pakistan can only watch from the sidelines.

Published in Dawn, August 9th, 2025