US consumers to pay the price of Trump’s tariffs on India

Trump tariffs India: US President Donald Trump's doubling of tariffs on goods from India to as much as 50% took effect as scheduled on Wednesday, escalating tensions between the world's two largest democracies and strategic partners.

A punitive 25% tariff imposed due to India's purchases of Russian oil adds to Trump's prior 25% tariff on many products from India. It takes total duties to as high as 50% for goods such as garments, gems and jewellery, footwear, sporting goods, furniture and chemicals - among the highest imposed by the U.S. and on par with Brazil and China.

The new tariffs threaten thousands of small exporters and jobs. But Trump’s tariff salvo won’t just hurt India. Experts warn American consumers, too, will end up paying the price.


As per a report by the State Bank of India, US GDP growth could be reduced by 40–50 basis points as a result of the new duties, while inflationary pressures are likely to rise due to higher input costs and a weaker dollar. “We believe that US tariffs are likely to affect US GDP by 40-50 bps along with higher input cost inflation,” the report noted.

Import-dependent industries such as electronics, automobiles and consumer durables are already feeling the pinch. The SBI analysis projected that inflation in the US will stay above the Federal Reserve’s 2 per cent target through 2026, driven by tariff pass-through and exchange rate movements.

SBI warned that if the 50 per cent tariffs extend to all $45 billion of Indian shipments, New Delhi’s trade surplus with Washington could potentially flip into a deficit. “However, we believe trade negotiations will restore confidence and improve exports to the US,” the report added.

American consumers to pay the price

Goldman Sachs Group, echoing SBI’s view, said American consumers and businesses are already bearing the cost of tariffs imposed by the administration as its primary policy tool.

Goldman Sachs Group has also given a similar view, saying the impact of Trump’s tariffs on consumer prices is just getting started, adding more uncertainty to a Treasury market that has been gripped by shifting bets on the pace of interest rate cuts.

Although Donald Trump himself has said the opposite. “It been proven, that even at this late stage, Tariffs have not caused inflation, or any other problems for America, other than massive amounts of CASH pouring into our Treasury’s coffers,” Trump posted on his social media site, Truth Social, earlier this month. “Also, it has been shown that, for the most part, Consumers aren’t even paying these Tariffs, it is mostly Companies and Governments, many of them Foreign, picking up the tabs.”

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Americans’ bills to go up

US companies have so far taken the bulk of the hit from Trump’s tariffs but the burden will increasingly be passed on to consumers as companies hike prices, economists including Jan Hatzius wrote in a note. Consumers in the US have absorbed an estimated 22% of tariff costs through June, but their share will rise to 67% if the latest tariffs follow the pattern of levies in previous years, they wrote.

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The net result: faster inflation. The core personal consumer expenditure index, one of the Federal Reserve’s favourite measures of inflation, will hit 3.2% year-on-year in December, according to the Goldman analysts. They said underlying inflation net of tariffs would be 2.4%. The rate was 2.8% in June.

The report adds weight to a widespread view among economists that Trump’s sweeping tariffs will fuel inflation at a time when Fed policy has become a hot topic not just for bond traders but even for the president himself. Trump has broken convention by publicly calling for the Federal Reserve to cut rates, suggesting Fed Chair Jerome Powell should resign and adding an ally — at least temporarily — to the monetary policy committee.

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Tariffs to be inflationary

Most economists consider tariffs to be inflationary, since logic suggests companies will pass the additional costs onto their customers, as per Bloomberg. But the view isn’t unanimous — and the debate partly comes down to definitions.

“Inflation, certainly as it’s relevant to a central bank setting monetary policy, concerns an ongoing increase in the overall price level,” said Oren Cass, founder and chief economist at American Compass, in a recent episode of Bloomberg’s Trumponomics podcast. “If you choose a specific policy that by design makes a one-time change in the price of certain things, that is not inflation in a sense that you would want a central bank to worry about.”

Goldman’s analysis, which suggests businesses have held back from an all-at-once increase in prices, supports the argument that tariffs will ultimately be inflationary. The bank said tariff effects have boosted core PCE by 0.2% so far, with another 0.16% expected in July and an additional 0.5% over the rest of the year.

While American businesses have taken around 64% of the hit from tariffs so far, their share will fall to less than 10% as they pass on more of the costs onto consumers, according to the report.

Tariff impact on India

Meanwhile, exporter groups estimate hikes could affect nearly 55% of India's $87 billion in merchandise exports to the U.S., while benefiting competitors such as Vietnam, Bangladesh and China.

"The move will disrupt Indian exports to the largest export market," said S.C. Ralhan, president of Federation of Indian Export Organisations, noting about 55% of exports — including textiles, chemicals and leather - will face a 30–35% price disadvantage against competitors.

The government should consider a one-year moratorium on banks loans for affected exporters, besides extending low-cost credit and easier availability of loans, he said.

Rajeswari Sengupta, an economics professor at Mumbai's Indira Gandhi Institute of Development Research, said allowing the rupee to "depreciate is one way to provide indirect support to the exporters" and regain lost competitiveness.

Sustained tariffs at this rate could dent India's growing appeal as an alternative manufacturing hub to China for goods such as smartphones and electronics.

The U.S.-India standoff has raised questions about the broader relationship between India and the U.S., important security partners who share concerns about China.