U.S. Tariffs and Sanctions Hit Indian Markets - Why the UAE Is a Smart Pivot

 


Export Shock & Currency Pressure

The U.S. has recently escalated tariffs on Indian exports to a staggering 50%, targeting roughly two-thirds of the country’s exported goods. Sectors like textiles, gems, jewelry, shrimps, and furniture are bearing the brunt of this punitive measure. It threatens to shrink India’s exports to the U.S. by nearly $37 billion, jeopardizing jobs and disrupting supply chains.

The financial stress is palpable. The Indian rupee slid past ₹88 to the dollar, its lowest level ever, prompting central bank intervention. The depreciation could shave off 60–80 basis points from India’s GDP and poses mounting pressure on export-intensive sectors.

Resilient Growth & Sectoral Shifts

Despite these headwinds, India’s economy remains robust. GDP growth clocked in at an impressive 7.8% in Q2 FY2025, driven by strength in manufacturing, construction, agriculture, and consumer demand.

Sector-wise, analysts suggest looking beyond impacted industries. Domestic pharmaceuticals, building materials, and chemicals show promising growth trajectories, even amid turbulence.

Strategic Shift to the UAE — A Game Changer

Many Indian exporters are now pivoting toward the UAE to mitigate tariff exposure. By relocating manufacturing or exporting through a UAE-based entity, firms can see tariff rates drop from 50% to as low as 10%, provided they meet the required local value addition thresholds.

Indian jewelry manufacturers are trailblazing this shift, setting up operations in the UAE to avoid U.S. tariffs and benefit from preferential trade terms under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

UAE's Business Ecosystem: A Strategic Advantage

The UAE offers a business environment tailored to global exporters:

  • Free Zones: Allow 100% foreign ownership, full tax exemption, zero import/export duties within zone, and full repatriation of profits and capital.

  • Cost-Effective Structures: Companies can invoice from the UAE while keeping production in India, enhancing global credibility and reducing risk.

  • UAE as Trade Hub: Ideally positioned between key markets—Middle East, Africa, Europe, Asia—and offers world-class logistics, finance, and infrastructure.

  • Regulatory Simplicity: A stable legal system and numerous Free Zone options make compliance and setup streamlined.

Bottom Line

In today’s volatile geopolitical environment, businesses need to act strategically:

  1. Tariffs have abruptly increased cost structures for Indian exporters, threatening competitiveness.

  2. Selective growth sectors remain resilient at home.

  3. UAE-based operations offer a compelling pathway to bypass punitive tariffs, leverage Free Zone benefits, and uphold global supply chain viability.

If your business is navigating export headwinds or targetting new international markets, setting up in the UAE isn't just opportunistic—it’s essential for continued growth.

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