Why Trump’s Trade War May Hurt the US More Than India

In a dramatic turn of global economic diplomacy, former U.S. President Donald Trump’s announcement of a 25% blanket tariff on all imports from India has ignited serious economic ripples, both in Washington and New Delhi. But in a surprising twist, State Bank of India (SBI) Research believes it’s not India but America that may bleed more from this decision.

This isn’t just about economics. It’s about policy misfires, resilience, and the shifting tides of global power.

The Tariff Storm: What Happened?

On July 30, 2025, Trump declared a new wave of tariffs aimed at countering what he called India’s “unfair trade and energy ties with Russia.” The move has sparked concern globally, especially among U.S. importers who rely heavily on Indian goods, ranging from generic pharmaceuticals to precision electronics and machinery.

But while this may appear like a pressure tactic, SBI Research’s report calls it what it truly is: a "bad business decision" that could end up hurting the U.S. economy more than India’s.

India’s Resilience vs. America’s Risk

Economic Reality Check

Despite the U.S. being India’s largest export destination (accounting for nearly 20% of India's exports in FY25), India's diversified trade portfolio gives it a cushion. SBI notes that only 53% of Indian exports go to its top 10 trade partners, a sign of strategic de-risking over the years.

Meanwhile, the U.S. economy, already grappling with high inflation and debt concerns, faces deeper cuts. The research projects a potential increase in consumer prices, prolonged inflation beyond 2026, and a $2,400 average annual cost to American households due to tariff-induced price hikes.

And there’s more: low-income families in the U.S. may lose up to $1,300, while higher-income households could see a dent of nearly $5,000 annually. Add to that the cost of reorienting supply chains and disrupted pharmaceutical imports, and the economic picture for the U.S. looks even bleaker.

Pharma Fallout and India’s Strategic Leverage

Perhaps the most critical impact lies in the pharmaceutical sector. India currently supplies nearly 47% of generic drugs to the U.S. market. Disrupting this flow isn’t just economically expensive—it could trigger a public health crisis.

SBI estimates that a tariff-led fallout could shave off 2–8% of earnings for Indian pharma giants in FY26. But the impact on U.S. consumers could be worse: drug shortages, skyrocketing prices, and delays in essential medical supplies.

For Indian exporters, this blow is real, but not lethal. A robust domestic market, alternate trade routes, and a thriving ecosystem of MSMEs are expected to absorb the shock and pivot quickly.

The Bigger Picture: Is the U.S. Headed for a Downgrade?

The tariff announcement comes at a fragile time for America. In May 2025, Moody’s downgraded the U.S. credit rating, citing debt risks and geopolitical instability. SBI’s report warns that additional economic shocks—like trade retaliation from India or China—could further destabilise its fiscal standing.

Meanwhile, India continues to clock a rising trade surplus with the U.S.—from $11 billion in FY13 to an estimated $43 billion by FY25. For Indian MSMEs, especially in pharmaceuticals, electronics, and gems, this isn't just trade—it’s leverage.

What MSMEs Must Watch Out For

Indian SMEs and exporters must prepare for:

• Short-term disruptions in U.S.-bound orders.

• Shifting logistics and cost structures due to new duties.

• Opportunities in alternative markets like Africa, Southeast Asia, and Latin America.

Government support in the form of export incentives, interest equalisation, and fast-track trade diplomacy could help mitigate the impact. Trade bodies like FIEO and CII are already lobbying for measured responses instead of tit-for-tat escalation.

Final Thoughts: A Wake-Up Call for Global Trade

Trump’s move is a reminder that trade is no longer just business—it’s politics, power, and perception. But in this latest episode, it appears that India’s economic maturity and structural reforms have given it a better shield against knee-jerk populist measures.

And for the U.S.? Perhaps it's time to rethink the wisdom of economic nationalism in a deeply interconnected world.