India+1: Tariff Shock Sparks a Global Manufacturing Shake-Up in 2025
The Tariff-Driven Manufacturing Shift
The recent near 50% tariff hikes by the United States on Indian imports have sent shockwaves through global supply chains. This escalation is accelerating the “India+1” strategy—where companies diversify production beyond India to hedge against tariff risks and geopolitical volatility.
Immediate Impact of US Tariffs on Indian Manufacturing
India’s manufacturing sector, including dynamic hubs like Bengaluru’s toy factories and Maharashtra’s industrial corridors, faces a potent challenge. Following the August tariff hikes, many US buyers have paused or canceled orders.
For instance, a Bengaluru-based toy manufacturing unit reported a sharp decline in export orders for toys, dolls, and figurines. Buyers are sourcing from countries with lower or zero duties such as Bangladesh and Vietnam.
Reports reveal a significant stall in US-bound Indian orders. Over 20,000 small and medium manufacturers have felt the pinch, with around $1.5 billion in halted orders from a major garment cluster alone.
Learning from History: Global Trade Realignments
This mirrors past realignments when escalating costs or trade restrictions shifted production hubs:
- Early 2010s saw China+1 strategies, diversifying manufacturers to Vietnam, Indonesia, Bangladesh.
- 1980s Japanese export limits triggered “flying geese” shifts, sparking growth across South Korea, Taiwan, and Southeast Asia.
Though disruptive initially, such shifts often foster medium- and long-term growth, prompting nations like India to innovate, upgrade manufacturing ecosystems, and improve competitiveness.
What the numbers are saying?
Data from multiple sources indicate a 15% drop in India’s manufacturing exports to the US last quarter. Apparel, electronics, and transport equipment are most affected.
Meanwhile, Bangladesh and Vietnam benefit from duty exemptions under trade agreements like GSP and CPTPP, growing US-bound exports 10-12% year-over-year in similar sectors.
India’s strength in cotton production, textile integration, and scale remains unmatched. Yet, tariff shocks drive order flow shifts to neighboring countries, especially in fast fashion and low-margin goods.
What is the India+1 Strategy?
The India+1 approach means India remains a vital manufacturing location, complemented by additional bases in countries like Bangladesh, Vietnam, Mexico, and Turkey.
This diversification shifts shipping volumes: logistics providers note increased capacity use in Southeast Asia and Mexican ports, balanced by reduced container traffic from India to the US.
Indian supply chains must evolve—improving speed, cutting costs, simplifying compliance, and elevating quality to retain global customers.
Future Outlook: Challenges and Opportunities for India
Despite setbacks, India is proactively responding:
- Policy Supports: Production Linked Incentive (PLI) schemes and export assistance aim to boost global competitiveness.
- Infrastructure Upgrades: Enhanced ports, dedicated freight corridors, and streamlined digital customs reduce logistics costs.
- Value-Added Focus: Emphasis on higher-value sectors like electronics, pharmaceuticals, and engineering to cushion tariff shocks.
The challenge lies in balancing price competitiveness without sacrificing quality, while leveraging India’s large domestic market as a growth engine.
Navigating the New Era of Global Manufacturing
India’s manufacturing sector faces a crossroads: tariff pressures and global competition versus unmatched scale, talent, and emergent policy support.
The India+1 strategy signals a major reshaping of global trade and logistics footprints. Manufacturers who embrace innovation, agility, and operational excellence will lead the evolving market.
