Tariff wars with the United States have ebbed and flowed for years. After months of escalation, Washington and New Delhi stepped back a few months ago. The penalty tied to India’s purchases of Russian oil went, the reciprocal tariff was cut, and medicines and most electronics stayed exempt. Exporters treated it as relief. But an old worry in policy circles is worth testing: that high American tariffs will choke research in the industries that they touch, and set back India’s move into higher-value production.

The reality

That worry rests on a mistaken assumption that the sectors exposed to American tariffs are the sectors where India does its research.

Consider the impact of the 2019 loss of duty-free access and the 2025 tariff hit on sectors such as organic chemicals, plastics, base metals, machinery, auto components, and leather. Now consider how much these industries do in research. Indian metals firms spend about 0.4% of sales on R&D, compared with a global average of nearly 1.6%. Auto and parts makers spend a little over 2%, versus a global average of 5%, while electrical equipment firms spend less than 2%, against the same 5% global benchmark. These industries were research-thin long before any tariff arrived. The sectors most exposed to trade shocks and the sectors that invest in research barely overlap. India’s research effort is concentrated in pharmaceuticals and automobiles, and almost everything else does little. A tariff on chemicals or steel cannot cut research spending that was never there.

This also takes the air out of the claim that tariffs are holding back Indian innovation. Patenting and research spending in the exposed sectors show no clear break during the tariff years that can be attributed to the duties. These sectors had been on a low-research path well before 2018 and stayed on it. The tariffs are a symptom of a trading relationship under strain.

Research is a fixed and risky investment that pays off only when a product sells at scale. A firm facing a smaller export market can retreat to cheaper, undifferentiated goods, or invest in products that a tariff cannot easily replace. Indian industry has chosen the first path for decades, and a tariff does not change that habit.

Where tariffs do matter is narrow. Of the two sectors that account for most of India’s research, pharmaceuticals secured an exemption in the February deal, while automobiles did not. The 25% U.S. duty on auto parts remains, and metal tariffs raise input costs for downstream engineering and component firms. So, the live risk to India’s research base runs through autos — not the broad manufacturing economy that fills the headlines.

The real problem

The problem to worry about predates this trade fight and will outlast it. India spends a very small percentage of its output on research, a figure that remains well below that of the countries it wants to compete with. The private industry share is also well below the global leaders. What industry does spend tends to go toward routine development and testing rather than research that creates new products. By one comparison, Nvidia alone spends nearly as much on research as all of Indian industry combined.

This is the backdrop for the government’s ₹1 lakh crore Research, Development and Innovation scheme, launched late last year. It offers long-tenure, low-cost capital to firms in sunrise and strategic areas such as artificial intelligence, semiconductors, quantum technology and biotechnology. The ambition is overdue. But the money is pointed at the frontier, while the industries most exposed to trade shocks and most in need of moving up the value chain are older sectors that the scheme is not designed for. A chemicals or auto-parts maker that has never run a research programme will not start now because of a loan aimed at deep tech.

That is the opportunity the tariff episode offers. A trade shock tells an exposed industry that its products are vulnerable. The useful response is to move those firms into differentiated products that a tariff cannot easily undercut, which means investing in research. Incentives can be weighted towards core research rather than routine testing and aimed at exposed sectors instead of being spread thin. The higher costs that metal tariffs cause on downstream engineering firms can be offset for those that keep up research spending. Pharmaceuticals and autos also deserve protection in any further negotiations, because tariffs in these sectors can affect innovation. Sheltering an exposed industry without asking anything in return preserves low-value production. Support should be tied to research effort, so that relief rebuilds capability rather than freezing the status quo.

Time to measure research better

None of this works without better measurement. India’s official research figures arrive years late and undercount private spending. A country that cannot see where its research is going cannot steer it. A faster, firm-level record linking research spending to exports would let policymakers act before the damage shows.

The tariff truce gives India time. The tariffs were never the main thing holding back Indian research. The task is to fix what is: an economy whose exposed industries do too little research, while its research strength is in a few sectors that could be vulnerable to the next trade shock.

Arindam Goswami is Research Analyst at the Takshashila Institution, Bengaluru. The views expressed are personal