How Trump’s Tariffs Reshaped Indian Startups: Strain, Survival, and Self-Reliance

When Donald Trump first reignited tariff battles, the global discourse largely centered on how the U.S.–China trade war would reshape supply chains. But over time, as the dust settled, it became clear that the ripple effects went far beyond Beijing and Washington. India, with its rapidly expanding startup ecosystem, was caught in the crossfire. Cut to today, the Trump-era tariffs remain a much-discussed chapter in trade history—an example of how political decisions in one corner of the world can reshape entrepreneurial ambition in another.

For Indian startups, especially those in export-driven sectors, the tariffs of 2024–25 were not just an abstract economic policy; they were a lived reality. Costs went up, investor confidence dipped, supply chains collapsed overnight, and expansion plans were shelved. Yet, paradoxically, the same tariffs also forced Indian entrepreneurs to rethink their dependencies, explore new markets, and align more deeply with domestic policies. The impact was both disruptive and transformative—a story of how external shocks pushed a young ecosystem toward maturity.

The Economic Jolt: How Funding and Exports Took a Hit

No startup ecosystem thrives without capital, and for India, the years following Trump’s tariff extensions were a sobering reminder of how global uncertainty influences investor behavior. In the first half of 2025, Indian startups raised $4.8 billion in technology funding, which sounds impressive until you realize it marked a 25% year-on-year decline. Early-stage capital, the lifeblood of entrepreneurial innovation, shrank dramatically: seed funding fell 44% and early-stage funding dipped by 16%.

Why did this happen? Investors hate unpredictability, and trade wars introduced plenty of it. Suddenly, the cost of doing business for export-led startups was unclear. Would tariffs keep climbing? Would supply chains normalize? These unanswered questions made many global venture capitalists press pause, preferring to back “safe” bets in late-stage companies or funnel capital into resilient sectors like fintech, SaaS, and AI, which were less exposed to tariff volatility.

Exports told a similar story of turbulence. India exported $89.8 billion worth of goods to the U.S. in FY23–24, but projections for 2025 suggested a $5.76 billion decline. Electronics—a sector buzzing with IoT startups, device manufacturers, and chip innovators—was the hardest hit, with forecasts showing a 12% drop in shipments (about $1.8 billion). Other industries felt the sting too: seafood exports fell 20%, automotive parts 12%, and gems and jewelry 15%.

Yet, amidst the gloom, there were flashes of opportunity. In a surprising twist, Apple’s iPhone exports from India to the U.S. jumped 76% in April 2025 as American companies sought to pivot away from China. This underscored a paradox: tariffs were both a barrier and a door-opener. For some startups plugged into the right supply chains, it was an unprecedented chance to scale. For many others, it was a period of painful contraction.

On the investor side, FDI inflows told a complicated story. Gross inflows rose to $81 billion in FY24–25, up 14% from the previous year. On the surface, that looks like confidence. But dig deeper and you find that net FDI inflows plummeted to a meager $353 million—a result of heavy outflows as investors hedged against volatility. This revealed a critical insight: while India’s long-term story remained attractive, the short-term uncertainty created by tariffs had put global investors firmly in wait-and-watch mode.

Government as a Shock Absorber: Policy to the Rescue

If entrepreneurs were firefighting on the ground, the Indian government was busy rolling out policy cushions to limit the fallout. Three measures in particular stood out as critical lifelines during this turbulent phase.

The Production Linked Incentive (PLI) scheme, first introduced in 2020, became a powerful anchor for startups in hardware-heavy sectors like electronics, semiconductors, and telecom equipment. By offering cash incentives tied to incremental sales, the scheme encouraged companies to localize production. For startups previously reliant on tariff-sensitive imports from the U.S. or China, the PLI effectively offered an escape hatch. Reports suggest it attracted over $30 billion in investments, generating jobs and giving Indian startups a way to embed themselves in new domestic supply chains.

Then came the Atmanirbhar Bharat Abhiyan—a comprehensive push toward self-reliance. For startups, this was more than a slogan; it translated into dedicated seed funds worth nearly ₹1,000 crore, simplified regulations under Startup India, and targeted support for sectors like defense-tech, agri-tech, and health-tech. The initiative also gave rise to regional startup clusters through programs like “One District One Product,” enabling smaller ventures to step in where disrupted global suppliers had retreated.

Finally, a wave of logistics and trade reforms created new avenues for startups to diversify away from the U.S. By strengthening trade ties with the EU and UAE, introducing a National Logistics Policy, and streamlining customs compliances, India gave its entrepreneurs tools to explore new markets. Combined, these measures didn’t erase the pain of tariffs, but they did ensure that startups were not left to fight the storm alone.

How Startups Adapted: From Survival Mode to Strategy

Perhaps the most telling chapter of this story is how Indian startups responded. Forced to confront their vulnerabilities, many turned crisis into opportunity.

Supply chain realignment was the first and most urgent priority. Electronics and IoT startups, for instance, had long relied on imported components. Tariffs suddenly made that model unsustainable. Some scrambled to source from alternative countries in Southeast Asia, while others chose to localize production. Although localization raised short-term costs, it built resilience and positioned startups more firmly within India’s manufacturing ecosystem.

Next came market diversification. For decades, the U.S. was seen as the gold standard export destination. But as uncertainty grew, startups began pivoting toward Europe, Southeast Asia, and the Middle East. While these markets were smaller, they offered predictability—a commodity in short supply during the tariff wars.

Finally, there was the digital acceleration story. Sectors like SaaS, fintech, and edtech, which had little direct exposure to tariff risks, used the moment to double down on growth. With global businesses accelerating digital adoption, Indian startups in these verticals found themselves in high demand. Investors, too, shifted their capital toward these models, making them the relative winners of the Trump tariff era.

Sectoral Contrasts: Winners, Losers, and Survivors

Not all startups experienced the tariffs in the same way.

• Electronics & IoT startups were hit hardest. With imports becoming pricier, their margins were squeezed. Yet, those that leaned on the PLI scheme and localized their production managed not just to survive, but in some cases, to expand market share.

• Pharma & Biotech startups faced rising compliance costs and delays in U.S. market entry. But post-pandemic global demand for affordable drugs gave them a safety net. Government incentives for R&D further helped sustain their growth.

• IT & SaaS startups were largely insulated from the shocks. In fact, as businesses worldwide rushed to digitize operations, demand for Indian SaaS solutions rose. For this sector, tariffs acted more as background noise than a direct disruption.

A Crisis That Forced Maturity

Looking back, it is clear that Trump’s tariffs were more than a policy—they were a stress test for India’s startup ecosystem. In the short term, they hurt: funding shrank, exports faltered, and entrepreneurs scrambled for alternatives. But in the long run, they also catalyzed a cultural and structural shift.

Startups became less dependent on one market, more attuned to policy schemes, and more willing to localize supply chains. Investors became sharper about which sectors could withstand geopolitical shocks. And the government, for its part, proved that timely interventions could cushion external turbulence.

In other words, tariffs inadvertently did what no domestic program could have achieved as quickly: they forced India’s startups to grow up.

As one founder put it in the middle of those turbulent years: “We didn’t want to diversify or localize. Tariffs left us with no choice. Today, I see that as the best thing that could have happened to us.”

And that is perhaps the lasting lesson of this episode: external shocks, while painful, can sometimes be the very push a young ecosystem needs to become stronger, more resilient, and globally competitive.