By R. Suryamurthy
The global trading system is edging into a colder, more brittle phase, and the numbers emerging from Geneva and New Delhi tell the story with an uncomfortable clarity—one that Washington’s political class has not yet fully owned. The World Trade Organization’s latest Goods Trade Barometer, released on 28 November, shows world merchandise trade slowing as the effects of early-2025 import front-loading fade and a fresh tariff wave begins to distort flows across continents. The headline index sits at 101.8—formally above trend, but unmistakably weakening, a signal the post-AI surge is tapering off while the policy landscape turns more hazardous.
Beneath that headline, the WTO’s forward-looking elements echo the shift: electronics, autos, air freight and container shipping remain in expansion mode but are losing momentum; agricultural raw materials have already slipped below baseline; export orders, the market’s nervous system, are still above 100 but now flickering with signs of fatigue. The WTO’s broader projections—2.4% global trade growth in 2025 plunging to just 0.5% in 2026—underline a reality that policymakers on Capitol Hill prefer to frame as an inevitable rebalancing, when in fact it is tariff-driven.
For much of the past two years, Washington has insisted that sharply higher duties would help reshore manufacturing, protect American jobs and nudge supply chains away from strategic competitors. But the collateral damage is no longer falling primarily on China; it is ricocheting into the economies of U.S. partners—countries Washington says it wants as part of its “trusted” production network. India, in particular, has now become one of the clearest case studies in how tariff surges can undermine the very relationships the United States claims to strengthen.
The data coming out of New Delhi does not align with political rhetoric from Washington. It aligns instead with the WTO’s sombre charts and the lived experience of global manufacturers: tariffs at the 50% level do not cause reshoring; they cause rerouting. Production does not flow to Ohio or Michigan. It flows, instead, to Mexico, Vietnam, Bangladesh, sometimes even back to China—in direct contradiction to the geopolitical narratives driving U.S. trade policy.
The Global Trade Research Initiative (GTRI) this month quantified the depth of the shock. Between May and October 2025, India’s exports to the United States plunged 28.5%, falling from USD 8.83 billion to USD 6.31 billion. That collapse—one of the steepest short-term declines in the history of the bilateral economic relationship—did not stem from a recession in the United States, which remains broadly resilient. It came from an abrupt escalation in import duties: tariffs that stood at 10% in April were raised to 25% in August and doubled to 50% by the end of that month. Suddenly, India found itself facing the harshest tariff regime imposed on any major U.S. partner. China faced an average surcharge of around 30%, Japan about 15%; India faced 50%. By September, the tariff burden on Indian goods had entered what exporters call the “punitive zone”—the level at which orders do not decline gradually but vanish almost overnight.
Ajay Srivastava of GTRI, who has been tracking the tariff fallout, put it plainly: when duties rise this sharply in such a compressed time frame, supply chains no longer adjust—they break. Buyers hedge against uncertainty, logistics reconfigure chaotically, and even tariff-free categories get caught in a spiral of diverted shipments and second-guessing. That last point is critical, because some of the clearest evidence that this was not a sector-specific problem comes from categories entirely exempt from the new duties. Smartphones, pharmaceuticals and petroleum products—which together form roughly 40% of India’s U.S.-bound shipments—fell a striking 25.8% over five months. Smartphones, India’s single largest export line to America, plunged 36%, dropping from USD 2.29 billion to USD 1.50 billion.
Monthly shipments peaked in June, then slid through August and September as U.S. buyers reconsidered commitments amid tariff volatility, stabilising only marginally in October. Even petroleum product exports fell 15.5%, with gasoline shipments dropping from USD 68.3 million in May to zero by October, suggesting that refiners and traders were actively reconfiguring shipping routes to avoid unpredictability in customs treatment. Pharmaceuticals—one of India’s strongest and most defensible export categories—declined by 1.6%, small but symbolically telling: even in a tariff-free space, the trust deficit now influences contracting decisions.
The spillover into sectors where all global suppliers face uniform tariffs—iron and steel, aluminium, copper, auto parts—reveals another important dimension: the tariff shock is interacting with a cooling U.S. industrial cycle. Aluminium exports fell 43.3%, iron and steel nearly 20%, auto parts 22%, and copper 13.5%. Though these sectors represent just over 7% of India’s October shipments to the U.S., their simultaneous contraction points to a broader slowdown in American manufacturing activity—one shaped partly by weakened capital goods orders, persistent inflation uncertainty and elevated interest rates. In other words, even before Washington doubled down on tariffs, U.S. industrial demand was already losing steam. The new duties have simply accelerated the deterioration for foreign suppliers.
But the fiercest blow has been borne by labour-intensive goods—sectors that form the backbone of India’s employment-heavy export economy and now face the full 50% tariff. These categories accounted for over half of India’s shipments to the U.S. in October, and their exports collapsed 31.2% in five months, wiping out nearly USD 1.5 billion in trade. If one wants to see the real-world consequences of tariff policy, it is visible not in Washington’s policy documents but in the industrial districts of India. Textiles and apparel shipments fell 32%, with garments plunging more than 40% as U.S. orders shifted rapidly to Bangladesh, Vietnam and Mexico—the precise diversion effect economists have been warning about.
Clusters in Tiruppur, Noida, Panipat and Ludhiana are reporting cancelled orders, shrinking production lines and fresh retrenchments. Solar-panel exports dropped an astonishing 76%, illustrating the asymmetric tariff burden: China and Vietnam, facing lower effective duties in the U.S., expanded their shipment volumes while India’s were effectively priced out. Gems and jewellery, another labour-heavy sector, fell 27%, with polished diamonds down 29% and gold jewellery down 16%. Only lab-grown jewellery recorded growth at 21%, though exports of raw lab-grown diamonds collapsed 80%, signalling volatility in the very segment India had hoped to scale.
Chemicals declined 38%, striking industrial clusters in Vapi, Dahej, Ankleshwar and Visakhapatnam. Agro-chemicals were down more than 40%. Essential oils fell nearly 27%. Marine products slumped 39%, with vannamei shrimp exports—one of India’s most employment-intensive export categories—dropping 40% as buyers turned to Ecuador and Vietnam. Agriculture, often India’s last line of export resilience, unravelled even more sharply, falling 45% overall: cocoa shipments collapsed from USD 16.7 million to USD 0.1 million; dairy and honey fell 72%; oilseeds 55%; coffee, tea and spices about 37%; and lac, gums and resins 65%. These are not minor contractions; they represent dislocation across segments stretching from central India’s forest-produce clusters to Kerala’s spice belts and Gujarat’s oilseed processors.
This bilateral haemorrhaging is unfolding against a backdrop of global trade moderation. The WTO Barometer’s component indices reinforce the wider slowdown: electronics at 102.0, container shipping at 101.7, air freight at 102.7, autos at 103.0, agricultural raw materials below trend at 98.0, export orders at 102.3. Each number is a slight deceleration, but collectively they tell a more consequential story—a world economy in which trade is still functioning but is losing the dynamism that defined the post-pandemic recovery. In such conditions, tariffs do not simply filter unwanted imports; they amplify slowdowns into sharper contractions.
For Washington, this raises uncomfortable questions. Tariffs are politically attractive—they signal toughness, protect selected constituencies, and allow administrations to appear responsive to deindustrialization anxieties. But tariffs of the magnitude now applied to India do not build U.S. manufacturing strength. They build uncertainty, raise consumer costs, and encourage companies to shift sourcing not to America but to third countries with lighter tariff burdens. The idea that punitive levies will on their own regenerate U.S. industrial capacity has little empirical support. Yet the political momentum behind tariffs remains strong, leaving America’s putative partners to navigate a landscape where goodwill rhetoric is increasingly disconnected from trade reality.
India’s response so far has been hampered by domestic inertia. Export-support schemes—long-standing tools such as the Market Access Initiative and the Interest Equalisation Scheme—have made no disbursals this fiscal year. The new Export Promotion Mission, approved in November, has yet to issue operational guidelines. Without immediate implementation, these programmes risk becoming symbolic at a moment when exporters require liquidity support and market-access assistance most urgently. Diplomatically, India is now pressing Washington to roll back the additional 25% Russia-linked tariff surcharge. President Trump himself has acknowledged that India has “very substantially” reduced purchases from sanctioned Russian entities, weakening the original justification for the surcharge. Rolling it back would halve the effective tariff burden—from 50% to 25%—providing vital breathing room for labour-intensive sectors.
It challenges the assumption that tariff-heavy strategies can strengthen alliances while weakening competitors. In practice, tariffs are redistributing supply chains in ways that undermine the very partners Washington says it wants to cultivate. They are accelerating the trend toward regionalised trade blocs, pushing production into politically expedient jurisdictions rather than economically rational ones. And they are contributing to a slowdown in global merchandise trade that risks tipping into stagnation next year.
India’s five-month export collapse is not simply an Indian problem. It is a diagnostic marker of a global system under stress—and of a U.S. trade strategy that is producing consequences very different from those advertised. In an era when geopolitical alignment is treated as a premium commodity, tariff policy has become a blunt instrument that too often damages the very supply-chain partnerships Washington claims to value. The question now is whether the United States recognizes the cost of this strategy—or whether the next set of trade numbers will tell the story for it. (IPA Service)
India At The Crossroads Navigating Global Trade Headwinds In Tariff War 