US tariffs: Ever since Donald Trump returned to the Oval Office, Indian exporters have learnt a hard lesson: export risk comes not only from weak demand but also from policy uncertainty in the markets on which they depend.
The latest US tariff threat has reinforced that problem. The Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, signed into law by President Donald Trump on September 18, authorises the US administration to impose tariffs of up to 100% on imports from countries that continue to buy Russian oil and gas. India could be among the countries affected. The law itself does not impose a new tariff on Indian goods. The rate, products covered and timing remain decisions for Washington.
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For exporters, that uncertainty is enough to force a rethink. The question is not whether Washington eventually imposes a 20%, 50% or 100% tariff. It is how much dependence on any single export market the Indian economy can afford. India’s trade policy needs to make diversification a central objective.
The US market cannot be replaced overnight
The US is an important market for India, and the numbers make that clear. Roughly one-fifth of India’s merchandise exports go to the American market. Even when exporters find alternative destinations, shifting large volumes of trade takes time. Madhavi Arora, chief economist at Emkay Global, has noted that a major shock to exports to the US can be mitigated through diversification but cannot be completely absorbed elsewhere.
India’s recent export performance shows both resilience and vulnerability. Merchandise exports rose 26.1% year-on-year to $43.81 billion in August, while total exports of goods and services were estimated at $82.68 billion. Exports to the US also rose in August, helped by the lower tariff burden prevailing at the time and a weaker rupee.
The previous tariff episode offers a more sobering indication of what could happen if duties rise sharply again. When US tariffs on Indian goods reached 50% between September 2025 and February 2026, average monthly exports to the US fell to about $6.5 billion from $8.1 billion in the preceding six months. Yet exports to the US for the full financial year remained broadly stable, rising from $86.51 billion in FY25 to $87.31 billion in FY26.
Indian exporters responded by adjusting prices, redirecting shipments, renegotiating contracts and looking for other buyers. Some of that adjustment is likely to have come at the expense of margins.
There is a difference between resilience and strength. An exporter who accepts a lower margin to retain a US customer is resilient. An exporter who can sell in several major markets has greater room to absorb a policy shock. India needs more of the latter.
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FTAs can open markets, but customers still have to be won
Recent trade agreements give India some room to diversify, although they cannot replace the US market overnight.
The India-UK Comprehensive Economic and Trade Agreement entered into force on July 15, 2026 and provides duty-free access to almost 99% of India’s exports to the UK, covering nearly 100% of trade value. The India-Oman CEPA has also moved into implementation, with Oman offering zero-duty access on 98.08% of its tariff lines, covering 99.38% of India’s exports to Oman.
The India-New Zealand FTA, signed in April, provides for zero-duty access for all Indian exports from entry into force and is scheduled to take effect on October 20. The India-EU FTA, meanwhile, concluded negotiations in January and provides preferential access on 96.8% of tariff lines covering 99.5% of India’s exports, with 90.7% of exports by trade value expected to become duty-free when the agreement enters into force.
These agreements cannot magically replace the US. They can, however, reduce the cost of entering other large markets. If an Indian textile producer, jewellery exporter, engineering company or processed-food manufacturer can sell into several markets at lower tariffs, diversification becomes commercially more viable.
The gem and jewellery industry illustrates the opportunity. The US is one of India’s most important markets, but exporters are already looking towards Europe and other markets opened through trade agreements. The India-EU agreement could provide another channel for an industry exposed to American demand. The same applies to labour-intensive sectors such as textiles, leather and footwear, where preferential access to developed markets can improve competitiveness.
Tariff concessions alone will not deliver those markets. Indian exporters will still have to invest in logistics, meet technical and product standards, adapt designs and build distribution networks. Those are the same capabilities that helped them establish themselves in the US.
Diversification also has a limit. A company that replaces 60% dependence on America with 60% dependence on Europe has diversified geographically but not strategically. Market diversification has to be accompanied by a broader customer base.
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Exporters need to plan for uncertainty
Indian exporters cannot wait for Washington to reveal its next move before preparing. Companies should model different tariff scenarios and examine how existing and future contracts deal with tariff changes, price renegotiation and the sharing of additional costs. Where the timing and legal conditions permit, shipments can be brought forward before higher tariffs take effect. The immediate priority should be to identify alternative buyers and begin building those relationships.
The government has a role beyond negotiating tariff rates. Exporters need timely information about US measures so they can price contracts, manage inventories and decide whether additional costs can be absorbed or passed through. New Delhi should seek clarity, lower tariffs and adequate transition periods from Washington.
The incidence of a tariff will also depend on the product and the bargaining power of the parties. An additional US duty need not be borne entirely by Indian exporters. US importers may absorb part of it, while consumers may ultimately bear some of the cost. The extent of the pass-through will vary by product and by the availability of alternative suppliers.
The more immediate policy challenge is therefore to reduce concentration without assuming that every new market can absorb the volumes lost in the US.
Energy security and export security are linked
The Russian oil question complicates the diversification strategy. India has strong economic reasons to retain access to competitively priced crude. Russian oil has become a major source of supply, and changes in the cost or availability of crude feed through to transport, manufacturing and household consumption.
At the same time, dependence on Russian oil has become a source of exposure to US trade policy. The new US law makes that linkage explicit by giving the president authority to use tariffs against major buyers of Russian energy.
India therefore faces two separate but connected tasks. It needs to protect access to affordable energy while reducing the vulnerability of its exporters to policy decisions taken in a single foreign market.
The current tariff threat could eventually result in exemptions, a lower duty or no immediate action. That uncertainty is precisely the problem. Indian exporters cannot build a long-term business strategy around guessing what Washington will do next. The durable response is to make the economy less dependent on any one market, while ensuring that diversification produces actual customers rather than merely new trade agreements.