Trade data frames turbulent year, underlines challenge
The year 2025-26 was full of turmoil. Beginning with the imposition of reciprocal tariffs by US President Donald Trump and ending with the conflict in West Asia, global trade faced significant disruptions. It was also a year in which China recorded a trade surplus of $1.2 trillion (2025) as the export behemoth charged ahead despite Trump’s trade wars. India, too, faced uncertainty on several fronts, even as it finalised trade agreements, as with the UK and the EU, and reached an agreement with the US. In this year of unpredictability, merchandise exports for the full year stood at $441.78 billion, only marginally higher than the year before.
Disaggregated data shows that most labour intensive sectors such as gems and jewellery, textiles and leather, fared poorly during the year. The electronic goods segment stood out — exports were just shy of $48 billion, driven by smartphones. The impact of Trump’s tariffs, the Iran war, and the blockage of the Strait of Hormuz is visible in the data. Exports to the US barely rose during the year, while those to West Asia, which accounts for a significant share of India’s trade basket, collapsed in March. As many as 24 out of 30 export categories contracted during the month. Exports to the region fell by 57.95 per cent in the month, dragging down overall goods exports by 7.4 per cent. Imports were down by 51.64 per cent. Within the region, exports to the UAE were down 61.93 per cent, and those to Saudi Arabia by 45.67 per cent.
These trade disruptions will be seen in the month of April as well. But to what extent they continue will depend on talks between Iran and the US, and the movement of cargo through the Strait of Hormuz. Oil prices remain elevated. Brent crude is currently trading at around $95.8 per barrel. India’s crude basket, which comprises Sweet grade (Brent dated) and Sour grade (Oman and Dubai average), was around $110 per barrel as on April 15. Higher oil prices, if sustained, will have implications for the current account deficit— a $10 per barrel increase in price is estimated to increase the deficit-to-GDP ratio by around 30-40 basis points as per ICRA. In the current scenario, financing this may prove challenging.
- 1The global trade disruptions of 2025-26 had a significant socio-economic impact on India, with labour-intensive sectors like textiles and gems performing poorly, potentially affecting employment. Conversely, the electronics sector showed robust growth driven by smartphone exports. The surge in oil prices to $110 per barrel threatens to widen India's Current Account Deficit, posing a major challenge for macroeconomic stability and fiscal policy.
- 2Geopolitical turmoil in 2025-26, including US reciprocal tariffs under President Trump and the West Asia conflict blocking the Strait of Hormuz, severely impacted global trade. India's diplomatic efforts resulted in finalizing trade agreements with the UK and EU, showcasing a strategy to diversify trade partnerships and mitigate risks from conflicts involving key partners like the US, Iran, UAE, and Saudi Arabia.
- 3India's governance framework was tested by the global trade volatility of 2025-26, compelling the government to adopt a multi-pronged strategy. This included finalizing crucial Free Trade Agreements with the UK and EU to secure new markets and mitigate the fallout from US tariffs and the West Asia conflict. The government's key challenge now is managing the economic implications of high oil prices and a widening Current Account Deficit.
- 4The negotiation of trade agreements with the UK and EU falls under the Union's exclusive power to regulate foreign trade, as per Entry 41 of the Union List in the Seventh Schedule of the Constitution. These legally binding treaties aim to provide stable market access, acting as a legal buffer against unilateral actions like US tariffs, which challenge the rule-based order of the World Trade Organization (WTO).