Tarrifs, Trade & Tensions - Tantrums to Tackle

 

US Imposes 25% Tariff on Indian Imports: Trade Tensions Escalate Amid Geopolitical Crosswinds

In a significant development in global trade diplomacy, US President Donald Trump announced on July 30, 2025, a 25% tariff on Indian imports—effective from August 1. The move also comes with a vague but looming "penalty" for India's continued energy and defence ties with Russia, underscoring a sharp escalation in economic pressure and strategic signalling. This marks a continuation of US tariff actions initiated earlier in 2025. A 26% reciprocal tariff on India had been announced in April but was put on hold. The new 25% levy is essentially its implementation—with a marginal reduction.

Why the Tariff? Key Reasons Cited by the US: The US justified the decision through a combination of economic and geopolitical concerns:

• Trade Deficit: The US goods trade deficit with India hit $45.7 billion in 2024, up 5.4% from 2023—prompting claims of imbalance and unfair trade practices
• Non-Tariff Barriers: US officials have criticized India’s agricultural subsidies and food safety standards (SPS measures), arguing they restrict market access for American exports
• India’s BRICS Role: India's engagement with BRICS and its exploration of alternative global trade mechanisms are viewed by Washington as undermining dollar dominance
• Ties with Russia: India's continued defence and energy imports from Russia have triggered calls for punitive action under the proposed Russian Sanctions Act, 2025, which seeks to impose 500% duties on countries buying oil from Russia

The penalty details are still unclear—perhaps by design—adding a layer of uncertainty to ongoing trade negotiations.

US–India Trade at a Glance: The United States is India’s largest trading partner, with bilateral trade reaching $131.84 billion in 2024–25. India exported $87 billion worth of goods to the US—ranging from electronics and pharmaceuticals to gems and textiles. However, the persistent trade deficit continues to shape US policy.

Key sectors now in the tariff crosshairs include:

Electronics: India emerged as the top iPhone exporter to the US in Q2 2025, supplying 44% of all iPhone exports. These tariffs threaten Apple's plans to scale production in India.

Pharmaceuticals: India supplies 50% of the US’s generic drug needs. Tariffs could impact competitiveness and pricing in this critical sector.

Gems & Jewellery: The US accounts for over 30% of India’s global jewellery exports—now facing cost inflation and disrupted demand.

Textiles & Apparel: Exporters report shipment cancellations as the 25% tariff renders Indian goods less competitive compared to regional rivals.

India at a Regional Disadvantage?: India’s new 25% tariff stands in stark contrast with the lower rates negotiated by others:

Japan, EU: 15%

South Korea: 15%

Indonesia: 19%

Vietnam: 20%

This disparity may result in order diversions—a significant threat to India’s export-driven sectors.

Legal & WTO Implications: The US cites legal justifications under:

Section 232 (national security)

Section 301 (unfair trade practices)

International Emergency Economic Powers Act

India, meanwhile, reserves the right to respond under WTO norms. However, with the WTO Appellate Body still non-functional, dispute resolution options remain limited.

India’s Response: Caution, Commitment, and Continuity

The Indian government has acknowledged the development and is evaluating its impact. In a measured response, the Ministry of Commerce reaffirmed India’s commitment to a balanced, fair and mutually beneficial Bilateral Trade Agreement (BTA) with the US. Nation’s interest is foremost for all the countries. India reiterated that the welfare of farmers, MSMEs, and entrepreneurs remains its top priority—and that all necessary steps will be taken to safeguard national interests. The recent India–UK trade agreement was cited as an example of India’s approach to fair but firm negotiations.

Industry Voices Concern and Call for Diversification: Exporters and trade bodies have raised alarms over:

• Supply chain disruptions
• Diminished competitiveness
• Urgent need for market diversification and trade insurance
• Sectors dependent on US demand are bracing for uncertainty

Why Is the US Turning Up the Heat on India? 

The recent tariff actions by the US are not just about trade—they reflect deeper strategic calculations. In his previous term, President Trump faced stiff resistance from India during trade negotiations. At that time, Prime Minister Modi held a strong parliamentary majority and stood firm on key national interests. Today, with a changed political equation in India, the Trump administration may see an opening to exert more pressure.

Every leader prioritizes national interest, and the US is no exception. But friction points have been building for years:

India’s Defence Independence: Despite US pressure, India proceeded with the S-400 missile system from Russia—crucial in recent regional defence scenarios, including India’s effective interception of F-16s, American-made jets. This event inadvertently raised questions about US defence exports.

Energy Sovereignty: India chose to continue purchasing oil from Russia, prioritising energy security over Western pressure. The US wants influence over global energy flows, but India has exercised independent judgment in national interest.

Food Sovereignty & Agriculture: The US is pushing to open Indian markets to its agricultural exports, but such moves could harm Indian farmers. Protecting domestic agriculture remains a core policy priority.

India’s Growing Global Clout: India’s rise as the 4th largest economy, its increasing role in BRICS, and efforts to create alternative trade mechanisms are seen by some in Washington as a challenge to US dominance.

Geostrategic Interests in the Region: The US’s renewed interest in Pakistan, possibly linked to the resource-rich regions of Balochistan and the potential for energy discoveries, has not gone unnoticed. This sudden shift in posture towards Islamabad naturally raises eyebrows in New Delhi.

Conclusion: A New Phase in Global Trade Diplomacy

This isn’t just about tariffs—it’s about the growing intersection of economic tools and geopolitical strategy. India now faces a critical challenge - how to maintain strategic autonomy while engaging a shifting global order. 

The path forward will require:

• Strengthening domestic resilience
• Broadening market access
• Defending core interests in global forums
• Sustaining strategic dialogue with the US

As negotiations continue, the outcome will depend on whether both sides can reconcile economic interests with evolving geopolitical realities. What unfolds next may well redefine the trajectory of US–India relations in a multipolar world.

While these tensions exist, they also create an opportunity for India. Rather than seeing this as a setback, we must view it as a catalyst to accelerate:

• Economic diversification
• Strengthening domestic industries
• Expanding into new global markets
• Unifying our national strategy

India cannot be isolated—and any attempt to do so will have global economic repercussions, including for the United States. What’s clear is this: India must stay resilient, self-reliant, and united. It’s time to focus on sustainable economic momentum and assert our place in the global order—on our terms.