Indian MSMEs Brace for Impact as U.S. Tariffs Rise to 50% – Strategies for Survival

In a dramatic escalation of trade tensions, the United States under President Donald Trump has imposed additional tariffs of up to 50% on a wide range of Indian goods. This move, reportedly in retaliation for India’s continued imports of Russian oil, directly impacts over half of India’s export basket to the U.S. and threatens to dent India’s GDP by up to 0.5% in FY 2025–26.

For Indian Micro, Small, and Medium Enterprises (MSMEs)—many of which operate with thin margins and rely heavily on exports—this policy shift is more than a diplomatic development; it’s a survival challenge. However, with proactive strategy and resilience, Indian MSMEs can navigate this turbulence and emerge stronger.

Key Indian Sectors Affected by the Tariffs

1. Gems & Jewellery

India’s gems and jewellery sector is among the hardest hit. The U.S. is one of the largest markets for Indian gems, and the steep tariff increase has led to cancellations of orders and hesitation among American buyers. In regions like SEEPZ Mumbai, where over 50,000 artisans are engaged, this move threatens both livelihoods and centuries-old craftsmanship.

2. Textiles & Apparel

MSME-dominated hubs like Tiruppur and Ludhiana are witnessing a sudden drop in international orders. Apparel exports are already a high-volume but low-margin business, and the new tariffs have rendered Indian garments significantly less competitive than those from Bangladesh, Vietnam, and Mexico.

3. Auto Components

Auto part manufacturers exporting everything from engines to wiring harnesses are bracing for cancelled contracts and cost escalations. The U.S. tariff hike directly targets this segment, which was earlier considered part of India’s Make-in-India export success story.

4. Spices (Jeera & Isabgol)

Indian cumin (jeera) and psyllium husk (isabgol) exports now face 25% tariffs, up from 0–10%. Gujarat, the leading producer of both, may see reduced demand and lower farm-gate prices, impacting farmers and processors alike.

5. Seafood & Shrimp

India is one of the top suppliers of shrimp to the U.S., and increased tariffs will reduce profit margins and may lead to spoilage or re-routing of perishable stock.

6. Leather, Footwear, and Specialty Chemicals

These sectors also face cost pressures, with export contracts under review and international clients demanding price renegotiations or alternative sourcing.

What Indian MSMEs Must Do Now

To withstand the economic shockwaves of this tariff escalation, MSMEs must adapt swiftly. Here’s how:

1. Adopt a “Compliance-First” Mindset

MSMEs should double down on regulatory compliance and documentation excellence. Real-time tracking of Harmonized System (HS) codes, U.S. tariff updates, and origin rules can help avoid unnecessary penalties. Investing in trade automation tools and customs consultancy will yield dividends in the current scenario.

2. Explore Alternative Export Markets

Rather than over-relying on the U.S., MSMEs should diversify exports to friendlier or tariff-neutral countries:

• UAE, Australia, and UK through bilateral trade agreements.

• ASEAN and African markets with demand for Indian textiles, pharma, and FMCG.

• Latin America for spices and processed foods.

India's trade deals under CEPA and FTAs must be actively leveraged.

3. Strengthen Domestic Value Chains

Many Indian exporters rely on imported raw materials or semi-finished goods, which increase overall landed cost. MSMEs must localize input sourcing and build deeper domestic supply chains. PLI schemes and cluster development programs offer a solid foundation.

4. Realign Financial Structures

The shock from these tariffs will be most painful on the balance sheets. MSMEs should:

• Revisit pricing strategies with U.S. buyers.

• Renegotiate supply chain contracts to share cost burdens.

• Secure working capital with lower interest lines via CGTMSE or SIDBI schemes.

• Invest in inventory planning to reduce export wastage.

5. Focus on High-Value Products

Rather than chasing volume in commoditized categories, MSMEs should pivot toward niche, high-margin products such as:

• Sustainable fashion (organic cotton, bamboo textiles)

• Ayurvedic wellness goods

• Designer handicrafts and lifestyle items

• AI-powered smart components in electronics and auto

Premiumization can offset tariff-induced cost hikes.

6. Invest in Technology and Automation

Digital platforms that track tariffs, automate invoicing, and simulate cost fluctuations across markets can offer real-time insights. AI-powered tools can also help with HS code classification, origin certificate management, and freight forecasting.

7. Leverage Trade Diplomacy and Associations

Indian exporters should rally through industry bodies like FIEO, EEPC, and CII to advocate for:

• Tariff exemption clauses or phased implementation

• Special incentives under India’s FTP (Foreign Trade Policy)

• Direct intervention through India-U.S. bilateral trade dialogue

Moreover, the Ministry of Commerce and Industry may explore WTO consultations or seek early negotiation channels.

8. Strengthen Relationships with Buyers

Transparent conversations with American clients can yield collaborative solutions such as:

• Joint tariff sharing

• Re-shipping through tariff-exempt markets

• Holding inventory in neutral ports

• Contract renegotiation with phased pricing impact

Policy Backing for MSMEs

The Government of India has also indicated support through:

• Enhanced export credit guarantee coverage via ECGC.

• Expanded incentives under RoDTEP and Interest Equalization Scheme.

• Emergency MSME protection fund proposals under consideration.

• Export Cluster expansion in SEZs and coastal economic zones.

Proactive engagement from central and state MSME departments is crucial to cushion this policy shock.

Conclusion: Resilience Through Strategy

While the 50% tariff hike by the U.S. presents a severe and immediate challenge, it is not an insurmountable one. The Indian MSME sector has shown time and again that with the right mix of policy support, entrepreneurial drive, and adaptive strategy, it can convert adversity into opportunity.

Rather than retreating from global trade, this is the time to rewire export models, build self-reliant value chains, and push into new geographies with renewed focus.

The message from this crisis is clear: Global trade is changing rapidly—and only those who move faster than the change will survive and thrive.

References:

• Economic Times, August 2025: “Who will be hit hardest by Trump’s 50% tariff on India?”

• Reuters, August 7, 2025: “India-U.S. tariff standoff: What are New Delhi’s options?”

• Times of India, August 7, 2025: “Gems & Jewellery, Jeera, Shrimp among key exports facing U.S. tariff heat”

• NDTV, August 7, 2025: “Leather, Gems & Chemicals face export blow amid rising tariffs”