Can India turn Trump’s 50% tariff shock into an opportunity for growth?

Donald Trump has done what Indian policymakers have often struggled with-create urgency for deep structural reform. By slapping a 25% punitive tariff on Indian goods over purchases of Russian oil-on top of an earlier 25%-he’s raised export duties to 50% for key sectors like textiles, leather, engineering goods and chemicals. For some exporters, the US market became unviable almost overnight.

A 50% tariff shock of this scale could shave 0.2-0.4 percentage points off GDP growth, risking a slip below 6% mark. While India’s current growth of 6.5% reflects resilience and dynamism, the real opportunity lies ahead. To shield ourselves from future geoeconomic shocks, India must break into a sustained 8-9% growth trajectory. Achieving this requires more than incremental measures. It calls for transformative policy action.

India now has a choice: treat this as a routine trade issue to be managed through diplomacy or leverage it as a catalyst for economic transformation-one that reduces overdependence on any single market and builds resilience against global disruptions.

This is not just about tariffs; it is a once-in-a-generation opportunity to strengthen our fundamentals and rewrite our economic playbook. The world is rebalancing supply chains, and India is better positioned than ever to seize this shift. With the right reforms, we can attract large-scale investments, empower our MSMEs and position ourselves as a global hub for manufacturing and services.

A decisive part of the answer lies in significantly improving ease and costs of doing business, not just nationally, but also at the state level. Competitive federalism must go beyond investment summits and translate into action. Greater coordination between states and GoI through harmonised regulations, model laws and unified digital systems would make India a truly integrated market.

Continued reform through scrapping outdated laws and further decriminalisation of minor non-compliances (as initiated under Jan Vishwas Act) must become the norm. Self-certifications should be the default for low-risk, unchanged operations-cutting compliance friction overnight without compromising safety or environmental standards.

Power and labour remain critical cost drivers across industries, making them crucial to industrial growth. Phasing out power cross-subsidies that burden industry with higher tariffs-while protecting vulnerable consumers through direct benefit transfers-would boost manufacturing competitiveness. Introducing responsible labour flexibility-hire-and-fire provisions balanced by portable social security and skilling-will help MSMEs scale and attract manufacturing FDI while safeguarding workers.

In the short term, India must keep its exports afloat and diversify its markets. Industries most exposed to US tariffs will require targeted credit support to survive the immediate shock. Simultaneously, we should accelerate trade talks with the EU, Asean, African and Latin American countries, and make better use of FTAs we already have with partners like Asean, where utilisation remains sub-optimal.

In the medium term, competitiveness must be built on two pillars: people and infrastructure. Public spending on education-from primary schools to doctoral research-needs to rise sharply, aligned to emerging industries like AI, green energy and advanced manufacturing. Industry, academia and government must coordinate on skill development, as critical sectors face shortages of highly skilled talent even while unemployment remains high.

Equally important is the need to grow beyond the usual 6-8 metros by developing high-quality growth clusters. Greater urban transport and housing infrastructure, cleaner air and water, and improved quality of life will help retain talent and stem the brain drain. Female labour force participation must also rise meaningfully, supported by return-to-work programmes for women after motherhood, safe workplaces and affordable childcare.

Tourism is another powerful lever for rapid jobs creation and forex earnings. With targeted steps like expanding e-visas, improving last-mile connectivity, and marketing India’s cultural and medical tourism strengths, we can unlock quick, wide-ranging growth.

In the long term, India must make early bets on strategic technologies-green hydrogen, rare-earth mineral processing, quantum computing-instead of waiting for others to consolidate their lead. In semiconductors, batteries, and advanced materials, domestic supply chains must be built to reduce import dependence. A sovereign technology fund can back high-risk, high-reward R&D with clear commercialisation paths. We should also identify underpenetrated country-sector combinations where Indian exports are currently minimal but have high potential and align industry support accordingly.

Trump’s tariffs are a reminder that the era of near-universal market access is over, with protectionism on the rise. India must treat trade policy and industrial policy as inseparable, and act accordingly.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)