Just when it seemed that India and the United States were inching closer to finalising a new trade agreement, former US President Donald Trump, now a presidential candidate for 2024, has thrown a spanner in the works. On Wednesday, Trump announced a sweeping imposition of a 25 per cent additional import tariff on Indian goods, effective from August 1. In an unexpected and undiplomatic twist, he also included a penalty— yet unspecified—citing India’s continued purchase of Russian crude oil and military hardware. This announcement, which caught Indian policymakers and exporters off guard, poses significant risks for bilateral trade between the world’s two largest democracies. It underscores not only Trump’s unpredictability but also the deeply transactional nature of his “America First” policy. At its core, a tariff is a tax on imported goods, paid by importers in the US, but eventually passed on to consumers and businesses. When such tariffs are imposed in bulk, as in this case, they essentially disrupt pricing mechanisms and reduce the competitiveness of imported goods. Indian exporters—particularly in sectors like garments, gems and jewellery, telecom equipment, leather, and agroproducts—stand to suffer significant losses. These are mostly labour-intensive industries that employ millions in India, and even a minor reduction in US-bound orders could lead to job losses and dampen rural livelihoods. The severity of the proposed tariff is compounded by Trump’s decision to stack it on top of existing duties. Indian textile exports, for instance, which already face a 6–9 per cent tariff in the US, would now be hit with a cumulative 31–34 per cent duty. With additional penalties on the horizon, India’s value-added exports risk becoming prohibitively expensive in one of its most critical markets.
India’s trade surplus with the US has been a persistent bone of contention in Washington. In 2024–25, India enjoyed a surplus of $41 billion in goods and a further $3.2 billion in services. Trump has long viewed trade deficits as evidence of unfairness. However, this perspective is flawed and ignores the complex ecosystem of modern trade—particularly the fact that the US benefits enormously from services trade, tech partnerships, education exports, and defence deals with India. A recent study by GTRI highlights this nuance: when factoring in revenue from education, financial services, licensing royalties, and digital platforms, the US in fact enjoys a $35–40 billion surplus over India. This broader picture is conveniently ignored in Trump’s narrative, which seeks to frame India as a tariff-happy outlier. In reality, India’s average applied tariff stands at 17 per cent—higher than the US’s 3.3 per cent, yes—but not exceptional when compared to other industrialising economies like South Korea (13.4 per cent) or China (7.5 per cent). Moreover, the US itself imposes punishingly high duties on key imports like dairy (188 per cent), cereals (193 per cent), and beverages and tobacco (150 per cent). So the argument that India alone is protectionist simply does not hold.
What makes Trump’s announcement particularly concerning is its timing. India and the US have been actively negotiating a comprehensive trade pact for the past few years. These tariffs not only undercut that momentum, but also send a troubling signal about the reliability of the US as a trading partner— especially when domestic politics begin to bleed into foreign policy. It also exposes a strategic vulnerability. India must now contend with the possibility that future geopolitical frictions—whether over energy, defence ties with Russia, or broader global alignments— may increasingly attract economic penalties from the US. This underscores the need for India to diversify its export markets, reduce overdependence on single-country trade, and future-proof its global supply chains. The Indian government’s response should be calibrated, not confrontational. This is not the time for retaliatory tariffs, which could trigger a tit-for-tat escalation. Instead, New Delhi must aggressively engage with its American counterparts—across party lines—and reinforce the argument that India is a responsible trade partner, a democratic bulwark in Asia, and a key cog in global manufacturing. At the same time, India must step up its internal reforms—simplifying its tariff structure, boosting manufacturing competitiveness, and strengthening its free trade agreements with other blocs like the EU, ASEAN, and Africa. What’s at stake is not just a few billion dollars in exports, but the credibility of an India-US economic partnership that was painstakingly built over the last two decades. If this partnership is to survive the turbulence of global politics and shifting alliances, it must be based on mutual respect, transparency, and long-term strategic thinking—not impulsive penalties and protectionism. As Trump returns to the campaign trail with a hardline stance, India would do well to remember the unpredictability of dealing with populist leaders. But it must also ensure that its economic diplomacy remains firm, consistent, and aligned with its broader national interest.