The imposition of 50% tariffs by the United States on Indian goods, effective August 27, 2025, is poised to strain the relationship between the two nations, according to Krystle Kaul, a NATO advisor. The tariffs, implemented by the Donald Trump administration, are a consequence of India's continued purchase of discounted Russian oil and are expected to significantly impact India's exports and overall economic growth.
The tariffs, which double the existing 25% duty imposed earlier in August, will affect approximately two-thirds of India's exports to the US, equating to roughly $60.2 billion. Certain sectors, including pharmaceuticals, electronics, and petroleum products, will be exempt from these tariffs. However, labor-intensive industries such as textiles, apparel, gems and jewellery, seafood, and leather are expected to bear the brunt of the increased duties.
Analysts predict a considerable decline in exports from these sectors, potentially collapsing by as much as 70%, which translates to a drop from $60.2 billion to $18.6 billion. Overall shipments to the US could decline by 43%, placing hundreds of thousands of jobs in India's export hubs at risk. Economists estimate that these tariffs could reduce India's annual GDP growth by 0.4% to 0.8%.
The move has already forced factories in Tirupur, Noida and Surat to halt production due to shrinking cost competitiveness. The Federation of Indian Export Organisations (FIEO) has expressed serious concerns, warning of severe disruptions to India's supplies to its largest export market. FIEO President S C Ralhan stated that Indian goods have become uncompetitive compared to those from China, Vietnam, Cambodia, the Philippines, and other Southeast and South Asian countries.
The US move is widely seen as a punitive measure for India's continued trade with Russia, specifically its purchase of discounted oil. The White House argues that these purchases indirectly fund Russia's war against Ukraine. However, Indian officials maintain their right to make strategic energy choices and have dismissed claims that the tariff is solely an "oil dispute". External Affairs Minister S Jaishankar has pointed out that the US scrutiny of India's Russian oil imports is not applied equally to China or the EU.
Despite the trade tensions, discussions are ongoing between India and the US regarding a bilateral trade agreement (BTA). However, a planned visit by a US delegation to India has been deferred, casting doubts on the possibility of securing a trade agreement soon.
The Indian government is exploring multiple ways to minimize the effects of the tariffs. These include providing financial assistance to affected exporters and supporting diversification into markets such as China, Latin America, and the Middle East. A ₹25,000-crore Export Promotion Mission is also under consideration, encompassing trade finance, regulatory support, standards alignment, e-commerce hubs, warehousing, and improved branding for "Brand India".
The tariffs have sparked political reactions in India, with opposition leaders criticizing the government's handling of the situation. Concerns have been raised about the impact on farmers, particularly cotton farmers, and the potential for significant losses across various sectors.
While some sectors like pharmaceuticals and electronics remain exempt, the overall impact of the 50% tariffs is expected to be substantial. The move could lead to a re-evaluation of trade strategies and a search for alternative markets for Indian exporters. The long-term consequences for India-US relations remain to be seen, but the immediate impact is undeniably challenging for Indian businesses and the economy.
