The US President’s surprise announcement of a 25% tariff on Indian goods, effective August 1, along with an unspecified penalty for India’s continued oil and defence imports from Russia, marks a deeply unsettling turn in Indo-US economic relations. Coming at a time when both nations were preparing for a fresh round of trade negotiations later this month, the abrupt policy move threatens to derail years of progress in economic cooperation and inflict lasting damage on India’s export-driven sectors. The US has long been India’s most significant trading partner, accounting for nearly 18% of its total exports and over 10% of total bilateral trade. With exports to the US totalling approximately USD 86.5 billion in 2024-25 and a total bilateral trade value of USD 186 billion, the scale of economic engagement is immense. India has consistently enjoyed a trade surplus with the US-USD 44.4 billion last fiscal year-and that very surplus now seems to be the proverbial red rag to the bull.
If the newly announced 25% tariff is indeed in addition to the existing baseline tariff of 10%, it could mean a cumulative 35% levy on Indian goods-a blow most exporters will find difficult to absorb. This will severely dent the competitiveness of Indian products in the American market. Export segments such as pharmaceuticals, telecom equipment, auto components, garments, and even jewellery-where price sensitivity and market competition are fierce-will be particularly hard-hit. A higher cost structure in the US will drive buyers toward alternative suppliers like Vietnam, Mexico, or Thailand. The cascading effects are not difficult to imagine. Exporters burdened by reduced orders may be forced into production cuts, layoffs, and lower capital investments. Manufacturing hubs across India could feel the tremors, with medium and small enterprises, which lack the cushion to absorb such shocks, likely bearing the brunt. This policy could not have come at a worse time-just as global economic demand remains sluggish and geopolitical uncertainty continues to cloud energy markets and supply chains.
While Trump’s complaint about India’s “obnoxious” non-monetary trade barriers reflects long-standing American frustrations, the suddenness and scale of this retaliation appear disproportionate. More importantly, the proposed penalty for India’s energy and defence deals with Russia is not just economically intrusive but diplomatically provocative. India’s energy diversification-especially the increased import of cheaper Russian crude-is based on economic pragmatism and national interest. Similarly, military purchases are the outcome of longstanding strategic cooperation. To penalise a sovereign nation for its external partnerships sets a dangerous precedent.
India is not alone in facing the brunt of the US administration’s protectionist approach. Trump has levied similar tariffs on NATO allies, the EU, and several Asian economies. However, developing nations like India, striving for growth and global competitiveness, will be disproportionately impacted by such blanket punitive measures. This raises a fundamental question-is the world’s largest economy willing to ignore the developmental needs of rising nations in its quest for trade parity?
The road ahead for India is uncharted but urgent. Diversifying its export markets is no longer a strategic choice but a necessity. Ongoing trade negotiations with the UK and Japan are positive steps. Still, India must move swiftly to seal comprehensive trade partnerships with the EU, ASEAN nations, Australia, and Latin American economies. Deepening its participation in regional supply chains and reenergising domestic reforms for ease of doing business will also be vital.
At the same time, India must engage diplomatically with the US to clarify the ambiguities in the new tariff policy and to try and moderate the undefined penalties linked to Russia. The million-dollar question remains: what’s next? The situation is still evolving, and much depends on the specifics of implementation and the outcomes of the upcoming negotiations. But India must prepare for the worst-case scenario-a protracted trade standoff with its largest export destination. The need of the hour is a coordinated response that safeguards national interests, protects domestic industries, and reorients India’s global trade strategy for a less US-centric future.
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