New Challenge from Trump’s Tariff
By Dr. Jayantilal Bhandari
The bright expectations of deep trade and friendship between India and the U.S. in President Trump’s second term were shattered on August 1, when Trump imposed a 25% tariff on Indian imports. Worse, Trump described the Indian economy as "almost dead" and compared it to Russia’s struggling economy.
Trump’s new tariffs, ranging from 10% to 41% on 70 countries, include a fixed 25% on India, aimed at correcting trade imbalances. On Truth Social, he justified the move by saying India maintains the world’s highest tariffs and tough non-monetary trade barriers, while sourcing much of its military equipment and oil from Russia—a country currently involved in war with Ukraine.
Interim Trade Deal in Tension
These developments come at a time when final discussions on an interim trade deal between India and the U.S. are underway. As per the February 2025 agreement between PM Modi and Trump, it’s to be finalized by end of 2025. However, India is resisting U.S. demands in agriculture and dairy—sectors tied to millions of Indian livelihoods. In response, the U.S. has escalated pressure through tariffs.
While several countries have conceded to Trump's unilateral demands, India stands apart. Accepting such agreements would endanger India's domestic priorities. India’s economic and social needs are distinct, and cannot be compromised.
Trade Statistics & Impact
In FY 2024–25, India exported $86.5 billion worth of goods to the U.S., 11.6% more than the previous year, while imports stood at $45.7 billion—resulting in a $40.8 billion surplus. The 25% tariff could significantly impact sectors such as auto components, textiles, metals, and pharmaceuticals.
According to the Global Trade Research Initiative (GTRI), India’s exports to the U.S. could fall by 30% to $60.6 billion in FY 2025–26. Barclays estimates that the impact on India’s GDP growth will be minor, just 0.30%, due to India’s strong domestic demand-driven economy. Barclays also expects eventual tariff reductions through further negotiations.
Trump May Hurt the U.S. More
Interestingly, India might not be the biggest loser. An SBI Research report suggests Trump’s tariffs could hurt the U.S. more, by raising inflation, weakening the dollar, and reducing GDP. The report calls the move “bad trade policy,” saying global supply chains will adapt, cushioning India from lasting damage.
India’s Firm Stand
Despite the export hit, India’s economy will remain largely unaffected as it is not heavily export-dependent. PM Modi’s refusal to bow to pressure is strategic—compromise now could lead to more demands later. India has not signed the interim deal and has rejected Trump's suggestion to let the U.S. dictate India’s foreign relations.
The Road Ahead
India will face export challenges in the U.S., and must diversify markets. Recent free trade agreements and engagement with South-East Asia will play a crucial role. Joining the CPTPP and boosting global service exports will be vital.
With a population of 1.4 billion, rising purchasing power, and status as the world’s fourth-largest economy, India has leverage. It is expected that Trump the businessman will ultimately return to negotiating mutually beneficial trade terms. A new era of Indo-U.S. trade cooperation may yet emerge.