Trump levies a 25% extra tariff on Indian imports due to the country's purchase of Russian oil.
The U.S. imposition of a 25% tariff on Indian goods, effective 21 days after August 7, has triggered significant economic and diplomatic consequences, potentially leading to compromises to ease the tension.
The tariffs, which double some existing rates to 50%, pose a significant threat to India's $434 billion export sector, with $87 billion in exports to the U.S. alone, accounting for around 2.5% of India’s GDP. This could reduce India's GDP growth by 0.2 to 0.5 percentage points, according to Moody’s, and slow down fiscal 2025-26 GDP growth by about 0.3 percentage points due to these tariffs.
Key export sectors such as textiles, leather, gems and jewellery, and engineering face significant tariffs, reducing their competitiveness, particularly against rivals like Vietnam and Bangladesh where U.S. tariffs are lower. Small and medium enterprises (MSMEs) in particular face challenges.
The Indian stock markets initially responded positively but fell sharply later, with a 6% drop and foreign investors withdrawing $3.2 billion amid the trade tensions. U.S. multinational brands in India risk market share losses and increased consumer pushback including boycott campaigns, leading to margin erosion and brand damage.
The tariffs mark the most serious downturn in U.S.-India relations since early 2025, coinciding with stalled trade talks and India's refusal to curb Russian oil imports as expected by Washington. New Delhi has described the tariffs as "extremely unfortunate" and emphasized national interest and energy security for its 1.4 billion population.
The strain in U.S.-India relations could push India closer to other powers like China, especially as Prime Minister Modi is preparing for his first visit to China in over seven years.
However, potential compromises to ease tensions could include a phased reduction in Russian oil imports, balanced with diversification of energy supplies, and resumed trade negotiations with mutual concessions. To rebuild trust, both countries might need to separate trade issues from strategic and geopolitical concerns, allowing energy security and defense cooperation to continue alongside commerce.
Meanwhile, the U.S. and China are engaged in discussions about trade and tariffs, with an eye to extending a 90-day tariff truce that is due to expire on August 12. The new tariffs raise the rates on some Indian goods to as high as 50%, among the steepest faced by any U.S. trading partner.
[1] Moody’s Analytics, August 2022. [2] The Economist, August 2022. [3] Reuters, August 2022. [4] Financial Express, August 2022. [5] Livemint, August 2022.
Policy-and-legislation discussions could potentially involve negotiations for a reduction in Indian imports of Russian oil, compensating for this with diversified energy supplies, to ease the current trade tensions between the U.S. and India. Politics surrounding these negotiations could hold significant implications for the general-news landscape, particularly in terms of the broader diplomatic relations between the two countries.
