U.S. Tariffs Will Have Long-Term Effect on Trade: Commerce Ministry to PAC

The Public Accounts Committee (PAC) was recently briefed by the Commerce Ministry on the long-term effects of the US tariffs on Indian and international trade patterns. Although industries such as textiles, chemicals, and marine products have seen short-term shocks to exports, the ministry cautioned that the longer-term reorganisation of supply chains, investment flows, and customer relationships presents a greater problem. For India, this concerns both geopolitical economic policy and export losses.

Why are U.S. tariffs back in focus?

Citing the need to balance trade imbalances, save domestic jobs, and occasionally claiming “national security” concerns, the United States has taken a more protectionist posture in recent years. These included sector-specific import levies and reciprocal taxes in 2025. India is among the nations that have been impacted by this.

The Commerce Ministry warned Parliament that tariffs could cause fundamental harm to trade, despite the fact that they are frequently portrayed as short-term solutions. It becomes very challenging to reclaim lost ground once customers switch to other suppliers or businesses move their production to different regions.

How tariffs impact India — the economic storyline

• Price competition is impacted: In the U.S. market, tariffs increase the landed price of Indian goods, which reduces their appeal in comparison to rivals like Bangladesh, Mexico, and Vietnam.
• Diversion of trade: American consumers move to other suppliers in order to avoid paying more. Contracts and relationships become sticky after supply chains are rewired, making it difficult for Indian exporters to re-enter the market.
• Effects on value chains: Indian MSMEs’ need for upstream inputs is also decreased by a decline in orders for finished goods like clothing or engineering supplies.
• Changes in investment: India may be exposed to long-term FDI losses if investors decide to move production to tariff-free countries or closer to the United States.
• MSME and stress at work: Tirupur (apparel) and coastal marine hubs are examples of export clusters that run the risk of losing orders, which would have a direct effect on local economies and jobs.

Sector-wise impact

• Apparel and textiles are extremely price-sensitive; even slight increases in tariffs cause buyers to leave. Vietnam and Bangladesh pose a threat to Indian exporters.
• Seafood and marine products are perishable, so exporters are unable to wait out tariff barriers; purchasers swiftly move to Ecuador or Vietnam.
• Pharmaceuticals: Tariffs on specialised products and compliance expenses may present challenges, although generics are less impacted.
• Engineering and Chemicals: As a result of rising landing prices in the United States, demand for both inputs and finished goods is expected to decline.

Government’s stance before PAC

• In its presentation to PAC, the Commerce Ministry emphasised that programs like RoDTEP (which has been extended until March 2026) and targeted loan support for exporters are helping to mitigate short-term impact.
• In order to get carve-outs or gradual adoption, diplomatic engagement with U.S. trade authorities is still ongoing.

Diversification plan: 

• Accelerating trade negotiations with the UK and EFTA to reroute exports and lessen reliance on the US market.
• Structural concern: Buyer realignments and investment shifts will have long-term effects, even if tariffs are later removed.

Why long-term effects matter

Although tariffs may appear to be temporary policy changes, their effects are frequently long-lasting:

• Lock-in of buyers: U.S. retailers seldom go back after they establish operations with Mexico or Vietnam.
• Relocating investments: Businesses who are concerned about potential policy risks move their factories to other locations.
• Capability gap: India lags behind rival exporters who increase their market share in terms of scale and technology.

For this reason, the risk was rated as long-term rather than just urgent by the Commerce Ministry.

The warning from the Commerce Ministry to PAC serves as a reminder that tariffs alter the structure of trade itself and are not merely about figures on customs charge sheets. Protecting exporters now while laying the groundwork for a more varied, robust, and value-driven export future is India’s dilemma.

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About the Author: Jyoti Verma