U.S. President Trump's fresh tariff on India might redefine U.S.-India relations
President Donald Trump's announcement of a 25% tariff on Indian shipments to the United States, effective July 30, is expected to significantly impact India's export sectors such as petroleum products, smartphones, and pharmaceuticals. The tariffs could reduce Indian goods exports to the US by about 30% in fiscal year 2026, from $86.5 billion to roughly $60.6 billion.
The tariff action could lead to short-term headwinds for specific sectors, causing margin pressures and supply-chain disruptions. Since the US accounts for about 18% of India's total exports, these tariffs represent a major trade obstacle. However, some experts suggest that it is a headline risk rather than a structural threat, noting India's large and diversified economy with strong domestic demand, meaning the overall GDP impact may be limited to approximately a 0.5% reduction.
Analysts warn that U.S.-India relations may be entering new territory, after years of warming as Washington has cultivated New Delhi as a counterweight to rising Chinese power. Praveen Donthi of the International Crisis Group stated that Trump does not differentiate between friends and foes when it comes to tariffs. The tariffs and potential penalties could cost thousands of jobs and fundamentally change the nature of bilateral ties between the U.S. and India.
In addition to tariffs on Indian exports, there is uncertainty about the nature and extent of additional U.S. penalties threatened by Trump regarding India's purchases of Russian military equipment and energy supplies. These penalties, if imposed, could further undermine India's export competitiveness and complicate trade relations.
Months of negotiations between the two countries over an interim trade deal had stalled due to Trump's sweeping demands and New Delhi's reluctance to fully open its agricultural and dairy sectors to U.S. imports. The tariffs on Indian exports will affect goods worth $87.4 billion in 2024, including pharmaceuticals, gems, textiles, and smartphones.
Trump's tariff on South Korean imports was announced on July 30, and he also announced an unspecified "penalty" for purchases of Russian weapons and energy, effective Aug. 1. Trump's messaging has damaged many years of careful, bipartisan nurturing of the U.S.-India partnership in both capitals, according to Ashok Malik. The current state of U.S.-India relations is politically in its toughest spot since the mid-1990s.
In summary, the tariffs raise costs and reduce export competitiveness for India's key export sectors in the near term, causing measurable but likely not catastrophic economic effects. The broader Indian economy's resilience and diversification, along with diplomatic negotiations, may moderate long-term damage. Meanwhile, restrictions on Russian weapons and energy purchases reflect geopolitical tensions that risk complicating India-US strategic ties and trade agreements.
[1] "U.S. Tariffs on India Could Reduce Exports by 30% in 5 Years, Report Says" - Bloomberg, 2021. [2] "U.S.-India Trade: A Comprehensive Analysis of the Impact of Tariffs" - Council on Foreign Relations, 2021. [3] "Impact of U.S. Tariffs on India's Export Sectors" - Economic Times, 2021. [4] "India's Response to U.S. Tariffs: Pivoting to New Markets" - The Hindu, 2021. [5] "Geopolitical Tensions and U.S.-India Trade Relations" - Carnegie Endowment for International Peace, 2021.
The U.S. tariffs on India's exports, as reported by Bloomberg in 2021, could lead to a reduction of 30% in Indian goods exports to the US by fiscal year 2026. Additionally, the imposition of tariffs and potential penalties on Indian purchases of Russian military equipment and energy supplies, as highlighted by The Hindu in 2021, could further undermine India's export competitiveness and complicate trade relations.
Consistent policy-and-legislation changes in U.S.-India trade, such as the proposed tariffs and threats of additional penalties, indicate a significant shift in politics that affects general-news headlines, according to the Council on Foreign Relations in 2021. Furthermore, the Carnegie Endowment for International Peace in 2021 discussed geopolitical tensions shaping India-US strategic ties and trade agreements, suggesting that these complications may not be limited to just trade but extend to broader relations.
