As of today, August 27, 2025, the Trump administration's increased tariffs on India have officially taken effect, escalating trade tensions between the two nations. This move, which doubles the tariffs on Indian goods to 50%, is a consequence of India's continued purchase of crude oil from Russia. The tariffs target approximately $48.2 billion worth of Indian exports to the US.

Impact and Exemptions

While the sweeping tariffs impact a significant portion of Indian exports, certain sectors have been exempted. Around 30% of India's exports to the US, valued at $27.6 billion in FY25, will remain duty-free. Key products in this category include pharmaceuticals, Active Pharmaceutical Ingredients (APIs), electronics, and refined petroleum fuels. Medicines alone account for 56% of the exempted items. Additionally, goods already in transit before August 27, 2025, may also be exempt under specific conditions. To avoid the additional tariff, these goods must be cleared for use in the US or removed from a warehouse before September 17, 2025, with the importer using the code HTSUS 9903.01.85 to certify this to US Customs.

Conversely, around 4% of exports, primarily auto parts, will be taxed at a 25% rate. The remaining 66% of Indian exports, encompassing apparel, textiles, gems and jewellery, shrimp, carpets, and furniture, will face the full 50% tariff.

Projected Economic Consequences

The Global Trade Research Initiative (GTRI) anticipates a potential 70% plunge in exports from labor-intensive sectors, shrinking to approximately $18.6 billion. Overall, India's shipments to the US could decline by 43%, potentially jeopardizing hundreds of thousands of jobs. Other experts estimate that the value of India's merchandise exports to the US could drop by as much as 40-45% in FY26. This could translate to a decrease from nearly $87 billion in FY25 to $49.6 billion this year.

S&P Global Ratings believes that the high US tariffs are unlikely to significantly impact India's long-term growth prospects. They estimate India's exposure to the US in terms of exports is only 1% of GDP, and while there might be a marginal short-term hit to growth, India's overall growth story remains sound. The Reserve Bank of India (RBI) has also projected downwards the GDP growth by 20 basis points after the tariff announcement in April.

India's Response and Countermeasures

The Indian government has strongly opposed the tariffs, deeming them "unfair, unjustified, and unreasonable". Despite the challenges, India is asserting its right to protect national interests and maintain strategic autonomy in purchasing Russian crude oil.

To mitigate the impact, the government is accelerating policy reforms, including GST restructuring, and exploring export aid. A Rs 25,000-crore Export Promotion Mission is also under consideration, encompassing trade finance, regulatory improvements, standards enhancements, market access initiatives, brand building, e-commerce hubs, warehousing, and trade facilitation. The RBI has expressed its readiness to safeguard the economy and promote local currency trade as part of its rupee internationalization strategy.

Winners and Losers

Countries like Vietnam, Bangladesh, Cambodia, China, and Pakistan, which currently benefit from lower tariffs under the Trump administration, are likely to gain from India's potential export setbacks.

India's textile sector has requested immediate government support, including cash assistance and a moratorium on loan repayments, to withstand the impact of the 50% US tariffs. Some textile and apparel manufacturers have already halted production. In the seafood sector, particularly shrimp exports, there are concerns about stockpile losses, supply chain disruptions, and distress among farmers, as the US market absorbs nearly 40% of Indian seafood exports.

Geopolitical Implications

Some experts suggest that Trump's tariffs could drive India closer to China, potentially leading India to join the Belt and Road Initiative (BRI). Concerns have also been raised about the potential impact on the US healthcare industry, as India is a major supplier of generic drugs to America.

Despite the tariff tensions, a senior US embassy official affirmed Washington's commitment to expanding energy ties with India. The US aims to be a key partner in oil, gas, and nuclear power, supporting India's energy security and economic growth.