Tariffs, trade and the green pivot: How Indian exporters can navigate a shifting global order

Economic Times

02-07-2025

iStock The disruptions from trade barriers should galvanize Indian firms to accelerate their sustainability journey.
The global trade environment is in flux, ever since the new tariffs have been announced, while also changing the market priorities. The United States has imposed a 26% reciprocal tariff on Indian goods, and that affects key sectors including steel, aluminum, pharmaceuticals, textiles, and electronics.
This policy is part of President Trump's trade strategy, which has been brought in to protect U.S. industries. But as it turns out, it might create challenges for Indian exporters by increasing costs and reducing the competitiveness in the U.S. market. For global manufacturers, this means re-routing trade flows to avoid higher costs.
In practice, companies are considering alternate suppliers and markets. For example, major electronics firms are moving production from China to Vietnam and India to dodge Chinese tariffs. In metals, exports are being redirected to friendlier markets. The sudden policy shift has effectively reshuffled supply chains, prompting Indian manufacturers to rethink export strategies. Exporters are scrutinizing their footprints and looking beyond the U.S. – and beyond China – for growth.
The US Tariff Test: India Walking a Tightrope
India has so far largely avoided direct U.S. targeting, but it will feel the repercussions. In the short term, Indian firms face added volatility: commodity input costs can spike under global tariffs, and demand in tariff-affected markets may soften. With U.S. markets effectively walled off for some exports, India risks surplus domestic output and dumping pressures. India's Steel Association warns that a sudden collapse in U.S. orders (85% down) could flood India's market with excess capacity. The U.S. tariff surge could even depress world prices, squeezing Indian margins. Longer term, experts emphasize the need for 'future-ready' export strategies. India's competitive position is improving – Indian products currently face lower U.S. tariffs than Chinese goods – which could make Indian exports more attractive if Chinese shipments shrink. However, it is important to understand that gains are not automatic. The IMF stresses that tariff wars curb growth and investment, which may translate into slower global demand (especially from developed markets). The Indian industry is already diversifying. In sum, while India avoids the immediate brunt of recent U.S. tariff moves, second-order effects – supply-chain flux, higher input costs, shifting orders – highlight the urgency of broadening trade links and building resilience.
The EU as a Sustainability-Driven MarketEU's Search for 'Greener' Pastures
While the US is taking a protectionist stance, the European Union is aggressively aligning trade policy with climate goals. The EU's Carbon Border Adjustment Mechanism (CBAM) imposes a carbon levy on imports of energy-intensive goods. CBAM, which expects foreign producers to match EU carbon prices on embedded emissions, creates a level playing field for EU industry but raises costs for higher-emitting imports.
At the same time, new EU regulations tighten social and environmental rules in value chains. The Corporate Sustainability Due Diligence Directive (CSDDD) requires large companies to identify and mitigate human-rights and environmental harms across their global supply chains. Importers and traders of major commodities (rubber, soy, wood, cocoa…etc.) across the EU are asked to ensure their supplies are deforestation-free under EU Deforestation Directive (EUDR). Non-EU firms that supply EU companies will thus face direct scrutiny: sourcing from an Indian supplier now implies liability for that supplier's practices under EU law. Similarly, the Corporate Sustainability Reporting Directive (CSRD) (with European Sustainability Reporting Standards, ESRS) mandates that EU-listed companies disclose detailed sustainability metrics. These transparency rules will trickle down, as manufacturers must now provide data to their EU customers.
Sectors most affected are those with heavy carbon footprints or extended value chains. EU buyers will demand precise 'embodied emissions' data for every tonne imported under CBAM. In short, the EU has essentially made sustainability compliance a prerequisite for market access. Exporters to Europe must navigate a web of new rules – carbon pricing, supply-chain due diligence and rigorous sustainability reporting – in order to compete.
Sustainability: the X-Factor for Indian Businesses
For Indian exporters who embrace transparency, this new reality can be an opportunity rather than an obstacle. The EU's carbon taxes and procurement policies mean that low-carbon, traceable supply chains now enjoy a competitive edge. Case in point is CBAM which explicitly aims to 'incentivize foreign producers to adopt greener practices'. Indeed, producers who can furnish accurate emissions data will avoid hefty CBAM charges and may even be eligible for rebates if they've already priced carbon costs. With India's Carbon Credits Trading Scheme (CCTS) gaining momentum, manufacturers can align with global sustainability standards and enhance their access to international markets.Beyond raw materials, exporters with certified sustainable practices earn market trust. Consumer and corporate buyers increasingly reward 'green' suppliers. A recent survey indicates that globally, compliance to external supply chain regulations is cited (by 59% of surveyed companies) as one of the key drivers of sustainable procurement practices. Many EU companies require their suppliers to meet net-zero targets. Thus, Indian firms that invest in traceability (logging of Scope 1,2,3 emissions) and transparent reporting can position themselves as preferred partners. Sustainability is no longer just a 'nice-to-have'; it's quickly becoming a gatekeeper for market access. Early movers – those who adopt renewable energy, optimize material use, and embed sustainability into their processes – can brand themselves as premium, compliant exporters and capture new demand in eco-conscious markets worldwide.
India at the Crossroads: Are We Prepared?
The challenge is that most Indian SMEs are still far behind. Large Indian corporations (mandated to disclose) have made progress – recent data show about 94% of top listed companies now report Scope 1 and 2 emissions and energy usage. But at the micro, small and medium levels, sustainability tracking is scant. A global survey of small businesses found only ~4% could even provide data on their total emissions, and only 5% measured their renewable energy use. Most lack formal GHG accounting, have limited digital infrastructure, and do not issue sustainability reports.
There are signs of change: a recent SIDBI MSME survey reported that 39% of firms increased investment in environmental measures during 2024, and 44% plan further investments next year. But these remain minority actions. Without urgent upgrades, thousands of small exporters risk being disqualified from lucrative contracts. With EU buyers demanding digital data on emissions and supply-chain practices, any gap in reporting or traceability could effectively shut small manufacturers out. Only a tiny fraction of India's MSMEs are equipped to measure or disclose this footprint. If unaddressed, this gap endangers India's competitive access to high-value markets.
The Future is Digital and Sustainable
Here, technology can help close the gap cost-effectively. Smart digital platforms and AI tools are increasingly available to simplify compliance. The UN-backed SME Climate Hub, for example, offers Indian MSMEs free online tools – a Business Carbon Calculator to identify emissions sources and a web-based reporting portal to log annual emissions – making it easier to start the climate disclosure process. In the private sector, a new generation of startups and software solutions are applying AI to sustainability. By detecting inefficiencies in real time, such systems guide business leaders to reduce emissions, waste and power draw without manual data entry.
Conclusion In the face of recent U.S. tariffs, Indian exporters cannot afford complacency. These policies bring near-term headaches, but they also reinforce a vital lesson: diversification is essential. For Indian industry, the EU market – Europe's $18 trillion economy – now presents a clear opportunity for growth. Success in Europe will require a dual focus on digitalization and decarbonization. Exporters who can digitize their operations, embed carbon tracking into routine practice, and transparently disclose their environmental footprint will not only meet new EU trade rules but also unlock new value.The disruptions from trade barriers should galvanize Indian firms to accelerate their sustainability journey. Those who act decisively today stand to transform uncertainty into a long-term advantage, cementing India's place as a reliable, green supplier on the global stage.
The writer is CEO and Co-founder, Sprih