India 2025: Opportunities and risks for German SMEs in the trade conflict with the USA
Find out what Trump’s current tariff policy means for India and you as a European company.
India has been emphasizing its enormous growth potential for years and is attracting German companies with low production costs, a young population and an ambitious industrial policy. However, the new US customs policy under Donald Trump is causing unrest – and forcing investors to rethink their strategies.
Tariff shock: 50% for Indian exports to the USA
In the textile stronghold of Tiruppur, the machines are only running in emergency mode. The reason: From August 27, 2025, 50 percent tariffs on Indian imports into the USA are to take effect(Executive Order White House, GTAI customs report). This announcement by Donald Trump is far more than just a local problem for Tiruppur – it is a serious warning signal for India’s entire economic and foreign trade strategy.
For producers with margins of 5-7%, such tariffs are an economic knockout blow. The industry is expecting sales losses of at least 50% in the US business. Competitors such as Bangladesh or Vietnam are faring much better with tariffs of 20% – and are now securing orders that previously went to India.
Geopolitics instead of trade dispute
The background to this is not a classic trade conflict, but geopolitics: the USA wants to persuade India to curb its oil imports from Russia. New Delhi rejects this – and is now paying a high economic price. At the same time, an extended tariff pause for China puts the Indians at a further competitive disadvantage.
India’s strategic “non-alignment” under pressure
Historically, India has consistently tried not to align itself with any fixed geopolitical bloc – neither during the Cold War nor today. This “strategic non-alignment” with a strong element of “cherry picking” was an advantage for a long time: customers and investors from the USA, technology from the West, cheap energy and weapons from the Soviet Union or, today, Russia. They combined what was advantageous in each case and thus kept their room for maneuver open.
However, this flexibility is now reaching its limits. In a world where trade and security policy are becoming increasingly intertwined, countries that dance at too many weddings at the same time risk being caught in the crossfire of geopolitical interests. The Tiruppur case shows this in its purest form: a single political decision in Washington can be enough to shake up an industry in India.
For the Indian textile industry, which relies heavily on price competitiveness and high export volumes, a 50 percent tariff is practically a trade freeze. In the short term, the volume of orders from the USA will plummet, jobs will be lost and many factories will have to reduce their capacity. In the long term, India will be forced to either open up new markets or redefine its negotiating position with the USA – in a global environment in which compromises will become more expensive.
Conclusion: India must redefine its position in a bloc-oriented world order
India is therefore facing a strategic decision – as Europe and other regions of the world have recently done: Will it continue to get the best of all worlds – and run the risk of suddenly being cut off from one side – or will it be forced to position itself more clearly? The Tiruppur case could be a foretaste of how vulnerable this “third way” model has become in an increasingly bloc-oriented world order.
What does this mean for you as a European company?
The events in Tiruppur show how quickly international sales markets can collapse as a result of political decisions – and how vulnerable supply chains are when they are heavily dependent on a single target market. Companies that primarily wanted to use India as a production location for the US market need to rethink their calculations. In certain consumer goods and textile segments, there is a risk of almost complete loss of market access.
For many Indian producers, the USA was previously the market with the highest turnover. If this market suddenly disappears, they will inevitably look for alternatives – and Europe will automatically become more of a focus.
This opens up several opportunities for European companies:
- Better negotiating position: Indian manufacturers will be more open to cooperation with European buyers and investors.
- Diversification of sales markets: Those who were previously heavily dependent on China or Southeast Asia can now find reliable partners in India who need to diversify their export markets.
- Technology and quality upgrades: To be successful in the European market, Indian producers will adapt their standards – and are often prepared to enter into long-term partnerships to do so.
- Duty-free sectors such as mechanical engineering, automotive supply, renewable energies and smartphones remain attractive.
- The weakening textile industry could free up qualified workers and production space – opportunities for technology-oriented SMEs.
- Focus on the domestic market: India’s growing middle class offers stable long-term demand.
- Cooperation with Indian politicians: investment incentives and subsidies could become even more attractive in the coming months.
Where we can support you:
This is precisely where our core business lies:
- We identify the right partners in India – not only the most favorable, but also the most stable in the long term.
- We design collaborations in such a way that they are culturally, organizationally and legally resilient.
- We manage risks by establishing supplier structures that can withstand political and economic fluctuations.
- We help with market penetration: from initial contact initiation to integration into existing supply chains.
At a time when the USA is shaky as a trading partner for many Indian manufacturers, Europe can become a strategic strategic replacement and growth region become. We ensure that you, as a European company, can not only seize this moment, but also build sustainable competitive advantages from it. We have been your strategic partner and guardian angel for India for more than 20 years. Contact us now. We look forward to hearing from you.
