India’s merchandise trade data for December 2025 has drawn attention not because of headline export growth, but due to what lies beneath it. While exports rose marginally year-on-year, a deeper analysis suggests that India’s export momentum has weakened after the imposition of steep US tariffs. The numbers raise important questions about India’s external sector resilience at a time of rising global trade friction.
What Do the December Trade Numbers Show?
Data released by the Ministry of Commerce and Industry shows that India exported goods worth $38.5 billion in December 2025, a modest 1.8% rise compared to December 2024. Imports, however, surged to $63.55 billion, nearly 9% higher than a year earlier. As a result, India recorded a trade deficit of about $25 billion for the month.
Such trade deficits are not unusual for India, but the concern this time is the weak export momentum despite global demand pockets and diversification efforts.
The Tariff Shock from the United States
A key backdrop to the slowdown is the 50% tariff imposed by the US administration led by Donald Trump beginning August 2025. These tariffs were exceptionally high and altered trade incentives sharply, particularly for export sectors dependent on the US market.
The critical policy question since then has been whether India could offset losses in the US market by expanding exports elsewhere.
Why Month-on-Month Data Tells a Different Story
Year-on-year export growth can sometimes mask turning points. A closer look at seasonally adjusted month-on-month data, analysed by HSBC Global Investment Research, reveals a clear loss of momentum.
Export growth averaged 0.7% month-on-month between January and July 2025, partly driven by front-loading of orders ahead of tariff implementation. After August, this slowed sharply to just 0.1% between August and December, signalling stagnation rather than expansion.
Sectoral Trends: Weakness Across the Board
The slowdown is not confined to a single sector. Growth in electronics, engineering goods, petroleum products and textiles has decelerated, though still positive. More concerning is the sequential contraction seen in pharmaceuticals, chemicals, and gems and jewellery—sectors that traditionally offer export stability.
This broad-based weakness suggests a demand-side shock rather than sector-specific issues.
Exports to the US Fall, China Gains Marginally
As expected, exports to the US declined both sequentially and annually after the tariffs came into force. HSBC estimates that average export momentum to the US fell from +1.9% (January–July) to –1.4% (August–December).
Exports to China did rise, but only by around $2 billion per month—far too little to offset the roughly $7 billion monthly drag from the US market. Exports to the rest of the world remained largely flat, highlighting the difficulty of rapid market substitution.
Why Export Weakness Matters for the Economy
Lower exports reduce demand for the Indian rupee, putting pressure on the exchange rate. Combined with rising imports, this can worsen the current account balance and constrain macroeconomic policy space. Export sluggishness also affects manufacturing output, employment, and investment sentiment.
What Policymakers Are Being Forced to Rethink
The data underscores the urgency of diversifying export destinations beyond the US, deepening trade ties with emerging markets, and improving competitiveness through logistics, trade facilitation and quality standards. It also strengthens the case for pursuing trade agreements that reduce tariff vulnerability.
What to Note for Prelims?
- India’s December 2025 trade deficit stood at about $25 billion.
- US imposed 50% tariffs on select imports starting August 2025.
- Month-on-month, seasonally adjusted data shows sharper export slowdown than y-o-y figures.
- Exports to the US fell; gains from China were marginal.
What to Note for Mains?
- Impact of protectionist trade policies on emerging economies’ export performance.
- Limitations of market diversification in the short run.
- Link between export performance, currency stability and macroeconomic management.
- Need for structural competitiveness and trade diplomacy in a fragmented global trade order.
