Trump tariff won’t derail India’s China plus momentum S&P explains why

US President Donald Trump’s steep tariff hike on Indian imports will not hurt India’s economic growth or its positive sovereign ratings outlook, S&P Global Ratings Director YeeFarn Phua said on Wednesday.

Speaking at a webinar on Asia-Pacific sovereign ratings, Phua said, “I don’t think the tariffs imposed on India will have an impact in terms of economic growth, largely because India is not a very trade-oriented economy. And if you look at India’s exposure to the US in terms of exports to GDP, it is just about 2 per cent.”

On August 6, Trump announced an additional 25 per cent tariff on all Indian imports, on top of an existing 25 per cent duty, raising the total to 50 per cent from August 27. The White House said the measure responds to India’s continued purchase of Russian oil.

Phua emphasised that key export sectors like pharmaceuticals and consumer electronics are exempt from the new tariffs, limiting their effect. “Over the longer term, we don’t think this (higher tariffs) will be a big hit (on India’s economy), and therefore, the positive outlook on India remains,” he said.

In May last year, S&P upgraded the outlook on India’s sovereign rating of ‘BBB-‘ to positive, citing robust economic growth. The agency expects India’s GDP to grow by 6.5 per cent in the current fiscal year, matching last year’s pace.

Addressing potential risks to investment flows, Phua dismissed concerns that higher US tariffs would deter foreign companies from expanding in India. He pointed to the “China plus one” strategy adopted by multinational firms in recent years, which has led to increased business setups in India primarily to tap its domestic demand.

“Many (businesses) are going there not because they are looking to export just to the US. Many of them are going there because of the huge domestic market as well. An emerging middle class is getting larger…So, even for those who are looking to invest more in India and looking to export, it might not necessarily be the US market,” he explained.

Between 2021 and 2025, the US has been India’s largest trading partner. The US accounts for about 18 per cent of India’s total goods exports, 6.22 per cent of imports, and 10.73 per cent of bilateral trade. In 2023–24, India recorded a goods trade surplus with the US of USD 35.32 billion, which increased to USD 41 billion in 2024–25.

In 2024–25, bilateral trade between India and the US reached USD 186 billion, with India exporting goods worth USD 86.5 billion and importing USD 45.3 billion. 

Phua reiterated that despite the tariff shock, the fundamentals of India’s growth story remain strong, underpinned by resilient domestic demand, a large consumer base, and structural reforms.