Shifty Trade Winds

“There is a dark well in all of

us, one that never goes dry.

You drink from it at your own

peril, for the water is poison.”

— Stephen King

Let’s begin with ancient mythology and move on to modern-day economics. In the Mahabharata, a prince faced a challenge—that of stringing a powerful bow and shooting an arrow straight into the eye of a golden fish, visible only by its reflection in a bowl of water. Such was the single-minded focus of Pandava prince Arjun on this task that he nonchalantly released the arrow and sent it whistling dead-centre into the target. The occasion was a swayamvar and Arjun’s focus on the task won him and (eventually) his four brothers a common wife, Draupadi.

Times have changed. So much that single-minded focus on only one task will not only not win you a wife, it might even cost you the one you do have… especially if you take your eye off the projectiles headed your way from unseen quarters. A naked example is India’s external trade scenario after the United States imposed tariffs and followed it up with other economic assaults. With 50-per cent tariffs, the prospect of an additional 25-per cent levies, a $100,000-fee on new H-1B visa petitions and proposals in the HIRE Act to penalize US firms hiring global talent, India has its hands full.

US Web is Distracting

Caught up as it is in this US web, India may be unaware of the other slugs headed its way. For one, exports to other trading nations have stagnated in the first five months of the ongoing fiscal (April-August 2025). As per official data, the cumulative value of exports in this period rose only modestly, by 2.52 per cent ($184.13 billion, against $179.60 billion last year). On paper, this appears benign. But the composition and destination-wise weakness tell a troubling story.

Non-petroleum exports grew by 7.35 per cent (US$ 158.07 billion vs US$ 147.25 billion), masking a contraction in key sectors and some destination markets. A deeper analysis shows exports to 10 of India’s top 20 trading partners have contracted, a disquieting trend that has thus far been buried in the larger economic woodwork being eaten up by US’ tariff termites. In August 2025, exports slumped to a nine-month low of $35.10 billion, down from $37.24 billion in July. In tandem, shipments to the US fell from $8.01 billion to $6.86 billion.

This weakness is not confined to the US alone. Increasing global competition, currency swings, supply-chain disruptions and tighter interest rates are challenging our ability to maintain export momentum. Estimates show that the new US tariffs alone could shave up to one percentage point off India’s GDP growth this year. If we consider the fact that the full impact of US tariffs will hit in rupee terms only in coming months, the risk of a contraction in exports in FY 2025-26 can only be dismissed at India’s peril. If it does materialize, it could trigger cascading consequences for growth, employment and balance-of-payments stability.

Organizational Fallout

The threat is not just numerical. It is existential for small exporters, labour-intensive clusters and their dependent workers. Leather, textiles, footwear, gems & jewellery and engineered products make up sectors most exposed to tariffs. Experts warn that employment could be hit in states like Uttar Pradesh and Gujarat, where there is a glut of these industries. Also, in Tamil Nadu’s tanneries, 50 out of a total of 300 units in one cluster have shut operations due to falling demand since the US announced tariffs.

The ripple effect is huge. From workers laid off to firms saddled with unsold inventories and to small units failing credit tests, thousands of workers in export hubs like Tiruppur, Surat, Bhadohi and Agra are migrating back to their homes, accepting lower-paid or informal jobs. Small and micro exporters are particularly at risk—with margins of just 3-5 per cent in labour-intensive industries, absorbing an abrupt tariff shock is quite a task. Also, many exporters lack the scale to reorient quickly or absorb losses while they retool. The South China Morning Post last week said young people, migrant labourers and micro firms will bear the brunt of the US-India trade strife.

At the macro level, the Indian Council of Economic Advisers has warned that the new US tariffs could reduce GDP by 0.5-0.6 per cent in the ongoing financial year. Economic strategists too have made no bones about this, insisting that their oblique reference to ‘imperial subterfuge’ is quite warranted. “In one stroke, the US has moved from reciprocity claims to punitive 50 per cent tariffs, exploiting global energy politics to demand compliance. This is wrong and has dangerous implications,” one said.

Rising Structural Fragility

For India, the tariffs couldn’t have been timed worse, as the labour base was already under strain. A majority of jobs remain enmeshed in low-skill sectors, in units that are at higher risk of automation or trade shocks. The tariff shock amplifies that structural fragility, with most workers being left with the Hobson’s Choice—displacement, wage cuts or involuntary exits (read ‘sackings’, more esoterically referred to as ‘pink slips’).

Even top organizations are feeling the punch, which is seeing industry associations, small-business and trade bodies, supply chain clusters and state exporters’ boards screaming for official intervention. For, if prolonged, the disruption may erode confidence in support mechanisms, especially if relief packages are delayed or inadequate. That shock can feed into credit stress, defaults, bankruptcies and a chilling effect on investments in export capabilities. India cannot let this moment pass off as a tremor; it needs to be seized and made a turning point for strategic renewal.

One, trade diversification is a must. India has already widened its export outreach to 50 countries to blunt dependency on the US. Quick pivots to Africa, Latin America, ASEAN, the Gulf, Latin America and Eastern Europe could save the day. Two, India must announce calibrated relief for exports, not half-measures. Credit guarantees on overdue loans, export credit subsidies, liquidity support for small exporters and sector-specific incentives must be delivered immediately.

Three, India must double down on negotiating leverage. The trade crisis with the US underscores the risk of playing passive, and India should escalate multilateral cases in the WTO and explore reciprocal actions (if it carefully can). Four, labour support and social cushions in the domestic market must be expanded, or else mass dislocation without safety nets may see political as well as economic costs unravel. And five, prudent policy must ensure forex, interest and credit stability. With rupee pressures, higher deficits and a volatile world rate environment, India must balance support with fiscal discipline.

Moment for Renewal

What is happening is not just a tariff war, but a warning too. External shocks, whether tariffs, supply-chain disruptions or geopolitical sanctions, have the propensity to converge and cascade. India’s long-term resilience lies in reducing dependencies, upgrading competitiveness and embedding export value chains within itself, rather than merely exporting raw inputs. The warning is clear: if FY 2025–26 were to see even a marginal contraction in export growth, the consequences could ripple, slowing down growth momentum, impacting job creation, buckling state revenues and putting the current account under seething pressure. The timing is precarious, for India’s growth in Q1 of FY 2026 was 7.8 per cent year-on-year—robust by any standard. A step backward would not be good.

India should also be clear that the resilience buffer listed above cannot immunize it indefinitely. What the US has done—turning trade policy into geopolitical coercion—is a deadly reminder that in today’s multipolar world, no country is immune to external economic coercion. If India meets the challenge with vacillation, it will be rewarded politically, socially and economically.

The crisis being faced by India can be the catalyst for a rejuvenated export strategy—diversification of markets, depth of value-added chains, investments in labour skilling and a protection for economic sovereignty. India can and must turn the squeeze into a springboard. But there is a danger too, that if it does not do so, India may lose years of growth and millions of jobs. The choice is an easy one.

He can be reached on narayanrajeev2006@gmail.com. Views expressed are personal. The writer is a veteran journalist and communications specialist