Trade Deficit Shrinks Sharply—but Can India Survive US Tariffs and Middle East Turmoil?

India’s merchandise trade deficit fell to $18.78 billion in June, down sharply from $21.88 billion in May, even as exporters braced for rising global tensions and the threat of new US tariffs that could batter market access and profitability.

Data from the Ministry of Commerce and Industry showed merchandise exports dropped to $35.14 billion in June from $38.73 billion in May. Imports also fell, sliding to $53.92 billion from $60.61 billion the previous month.

Year-on-year comparisons reveal a slightly narrower gap too: in June 2024, exports were $35.20 billion and imports $56.18 billion, for a deficit of $21 billion. Meanwhile, total goods and services exports last month hit $67.98 billion, while combined imports were $71.50 billion—leaving a net trade deficit of $3.51 billion.

Yet behind these numbers lies a volatile global backdrop that’s keeping policymakers on edge. This year has been marked by intensifying global trade tensions, with India’s exporters facing a squeeze from multiple fronts: the threat of fresh US tariffs under President Donald Trump, rising insurance and shipping costs due to the Israel-Iran conflict in June, and persistent friction with Pakistan.

The Israel-Iran clashes disrupted traffic through the Strait of Hormuz, a lifeline for India’s energy and container trade, further straining supply chains already dealing with high costs.

Commerce Secretary Sunil Barthwal acknowledged last month that conflicts and uncertainties were weighing on Indian exporters but said the government is actively working to ease their shipping and insurance concerns.

Meanwhile, India is accelerating trade negotiations with the European Union and the United States in a bid to secure better market access, reduce tariffs, and attract investment in technology and renewable energy sectors.

But time is running out. India and the US are in the final stages of hammering out a trade deal that must be signed by August 1 to avert a wave of new American tariffs on Indian exports. Talks remain stuck on politically sensitive areas like dairy and agriculture, threatening to derail a critical agreement just as exporters need relief the most.

As negotiations intensify, industry leaders are watching closely to see if India can pull off a deal that shields its exporters from higher costs and secures the trade stability it badly needs.

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