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India’s merchandise exports edged up to $38.5 billion in December 2025, marking a modest 1.8% rise compared with December 2024. Imports, however, jumped sharply to $63.55 billion, widening the monthly trade deficit to a sizeable $25 billion. While the headline figures appear mixed, the December data is significant for a more structural reason: it offers early insight into how Indian exports are faring after the “Donald Trump” administration imposed steep 50% tariffs on select imports starting August 2025.

Why December’s Trade Data Is Significant

On the surface, year-on-year export growth in December looks reassuring. But policymakers and economists are focused less on annual comparisons and more on whether export momentum has shifted since the US tariffs came into force. With the United States among India’s largest export destinations, the new trade barriers represent a critical stress test for India’s export resilience, both to the US and globally.

According to analysis by “HSBC Global Investment Research”, exports have not collapsed, but the underlying momentum has clearly weakened.

What Sequential Data Reveals

Rather than relying on year-on-year figures, HSBC examined month-on-month export growth after adjusting for seasonal effects, revealing a more nuanced trend. Between January and July 2025, before the tariffs were imposed, exports grew at an average sequential rate of 0.7% per month. This was partly supported by exporters accelerating shipments in anticipation of trade restrictions.

After August, the picture changed sharply. From August to December, average sequential growth slowed to just 0.1%, indicating that exporters are struggling to maintain volumes once the tariff shock became reality.

Sectors Showing Signs of Strain

The slowdown is widespread. Although exports of electronics, engineering goods, petroleum products and textiles continue to expand, their growth has moderated significantly. More worrying is that sectors such as pharmaceuticals, chemicals, and gems and jewellery have recorded sequential declines. This suggests the impact of tariffs is no longer limited to a few categories but is spreading across India’s export basket.

US-Bound Exports Hit Hardest

Exports to the United States have been the most directly affected. HSBC estimates that average sequential export growth to the US fell from 1.9% during January–July to -1.4% between August and December. In value terms, exports to the US declined by roughly $7 billion per month.

Gains elsewhere have been insufficient to compensate. Exports to China increased marginally by around $2 billion a month, while shipments to the rest of the world remained largely unchanged.

Implications for the Trade Deficit and Rupee

Sluggish export growth alongside strong import demand has widened the trade deficit, adding pressure on the rupee. Weaker exports reduce demand for the Indian currency in global markets, making the exchange rate more vulnerable amid broader global uncertainty.

The $25 billion trade deficit recorded in December highlights this imbalance, particularly as imports continue to rise even as export momentum falters.

The Policy Road Ahead

December’s data suggests that fears of an immediate export collapse were overstated, but it also warns against complacency. With US tariffs likely to persist, Indian policymakers face the challenge of diversifying export markets, strengthening trade relationships beyond the US, and supporting sectors that are losing traction.

Expanding into new markets, improving competitiveness, and easing trade frictions elsewhere will be critical if India is to shield its export sector from external shocks and sustain broader economic momentum.

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