Indian economy will take $55-60 billion hit from Trump's 'draconian' tariffs, warns Chris Wood of Jefferies

Calling US President Donald Trump’s decision to slap 50% tariffs on Indian-made goods – including a punitive 25% penalty for buying Russian oil – “draconian,” emerging markets strategist Chris Wood of Jefferies said India’s economy is set to absorb a direct hit of $55–60 billion from the tariffs.

“This amounts to an estimated $55–60 billion blow to the economy, with the most negatively impacted sectors being textiles, footwear, jewellery, and gems – all of which are employment-intensive,” said Christopher Wood, Global Head of Equity Strategy at Jefferies, in his weekly newsletter GREED & Fear.

Wood argued that the steep tariffs stem from Trump’s “personal pique” at being denied a role in resolving India-Pakistan tensions after their four-day military conflict in May. India has consistently drawn a red line against third-party intervention in Pakistan relations, despite the economic cost of depriving Trump of “one of his opportunities to win the Nobel Peace Prize.”

“The draconian tariffs India now faces are the result of an unfortunate series of events, compounded by the fact that Trump has not ended the Ukraine conflict as he had promised,” Wood added, noting that India’s continued Russian oil purchases have again become a sticking point.

The timing, he said, was particularly harsh, as the two countries had reportedly been close to finalizing a trade deal before the Pakistan conflict erupted, following the killing of 26 Indian tourists in Kashmir’s Pahalgam in April.

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Wood emphasized that no Indian government would open agriculture to imports, given the devastating impact on the poor. “Nearly 250 million farmers and related labour derive their incomes from agriculture, with the sector accounting for nearly 40% of India’s workforce,” he said.

Despite the tariff assault on goods, Trump has not yet targeted India’s booming services exports, which generate $150 billion annually in IT services alone. Global capability centres, set up largely by US multinationals and based in India, add another $60 billion in revenues. “When Trump talks about trade, he seems almost solely focused on trade in goods,” Wood observed.

The tariff threat compounds existing growth concerns, with nominal GDP projected to slow to just 8% year-on-year this quarter, well below the recent trend of 10–12%. Jefferies’ India office forecasts nominal GDP growth easing from 10% in FY25 to 8.5–9% in FY26 — the lowest in two decades outside the Covid years.

The government is scrambling to counter the impact through accelerated reforms. Alongside income tax cuts announced in the February budget, Prime Minister Narendra Modi has unveiled a long-planned GST overhaul, reducing the four current tax bands (5%, 12%, 18%, 28%) to just two (5% and 18%). According to reports, the GST reforms could be rolled out before end-September.

While 50% tariffs may not directly threaten most listed companies, they pose a “potentially massive negative for SMEs” in employment-intensive sectors. Wood cautioned this could hurt microfinance and consumer finance companies, with GDP potentially shaved by 1–1.2 percentage points if tariffs persist.

The tariff war also risks pushing India closer to China, with direct flights between the two countries set to resume in September after five years. Imports from China already run at an annualized $118 billion — 16% of India’s total and rising 13% year-on-year. “India needs China’s cheap goods, for example, solar panels,” Wood noted.

The irony, he concluded, is stark: America’s conceptual vacuum in foreign policy is “not in the national interest since it is surely not in America’s interests to push India closer to China” — as the world’s largest democracy faces an economic reckoning over diplomatic principles.

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