Impact of U.S. Tariff and Immigration Policy on India

Written by: Adhyayan Routroy & Ranjula Bali Swain - Associate Professor from the Department of Economics at Uppsala University, Sweden and Director of Research at Stockholm school of economics centre for sustainable development.

1. Introduction

The United States’ trade and immigration policies have significant implications for the global economy, particularly for developing economies like India. Recent trends in U.S. tariff increases and stricter immigration controls have created both challenges and opportunities. While these may disrupt trade and employment in the short run, they also open avenues for India to strengthen its domestic economy and attract global investments in the long term.

2. U.S. Tariff Policy — Impact on India

In 2024-25, the U.S., under President Donald Trump, introduced new tariffs on many Indian goods. These new rules have significantly impacted Indian exports. Exports from India to the U.S. are now more expensive, and many industries are suffering significant challenges. Indian exports to the US have plunged sharply by 37.5 per cent following imposition of tariffs on most Indian goods, according to a report by the Global Trade Research Initiative (GTRI). At the same time, U.S. immigration rules for workers from India are becoming tougher.

In this thesis, I have made an attempt to explore how these recent tariff changes will be a game changer for India in the long run and the labour market and skilled workers who might return to India to Make India Great Again.

(a) Short-term Impact

• Trade disruptions: Tariffs imposed by the U.S. on global imports can indirectly affect Indian exports. Although India may benefit from U.S. tariffs on Chinese goods, higher duties on Indian steel, aluminum, or pharmaceutical products reduce competitiveness.

• Export costs: Increased tariffs can erode profit margins and threaten employment in export-driven industries.

• Supply chain uncertainty: Global buyers may hesitate to rely on India if the U.S. trade environment remains volatile.

(b) Long-term Opportunities

Despite the inevitability of tariff impact on India's economy, the blow may not be too damaging. India still remains one of the few bright spots in an otherwise slowing global economy. The IMF’s October 2025 World Economic Outlook (WEO) projects India’s growth at 6.6% in FY26, up from 6.5% in FY25, before moderating slightly to 6.2% in FY27, signalling continued domestic momentum despite rising trade barriers.

• Shift in supply chains: Rising tariffs on China encourage global firms to relocate manufacturing, making India a natural alternative under ‘Make in India’ and Production Linked Incentives(PLI) schemes.

• Bilateral diversification: India can expand trade with the U.S. in specific sectors like IT, defense, and renewable energy, avoiding broader tariff disputes.

• India can explore new export destinations like Europe, South East Asia, East Asia etc

• Domestic manufacturing boost: Reduced dependence on exports can help build a stronger internal market base.

3. U.S. Immigration Policy — Impact on India

(a) Short-term Impact

• Visa restrictions: Stricter H-1B visa norms negatively impact Indian IT professionals and companies relying on U.S. contracts.

• Reduced migration: Fewer opportunities abroad may limit remittances and reduce global exposure for skilled Indians.

(b) Long-term Opportunities

• Talent retention: Reduced migration helps India retain skilled manpower, promoting innovation, startups, and technology growth.

• Expansion of domestic IT hubs: Companies may build offshore centers in India to counter visa restrictions, creating employment opportunities.

• Education and research: Decline in foreign migration may push Indian institutions to enhance quality and global competitiveness.

4. Strategic Long-Term Effects for India

Area	Potential Positive Effect	Risk if Not Managed
Trade	India can become a preferred alternative to China for manufacturing.	Failure to reform logistics and policy may cause lost opportunity.
Technology & Talent	Retention of skilled workforce could boost startups and digital economy.	Reduced exposure to global best practices.
Investment Climate	Global companies diversifying from China may invest more in India.	Bureaucratic delays or inconsistent policy could deter investors.
Diplomatic Leverage	India can balance relations between the U.S. and China.	Over-dependence on U.S. markets can make India vulnerable to future policy shifts.

5. Conclusion

In the short run, India may face difficulties due to export losses and restrictions on skilled migration. However, in the long term, these policies can act as catalysts for structural reform, domestic capacity building, and increased self-reliance. If post liberalization saw India got freedom from economic slavery and Permit Raj, the recent thrust on Ease of Doing Business(EODB) will certainly take India to the 3rd largest economy in the world. If India capitalizes on shifting global supply chains and enhances its business environment, U.S. tariffs and immigration policies may ultimately strengthen India's economic position globally.