India is preparing for the worst economic impact. This news follows a recent announcement from President Donald Trump that he has doubled tariffs on Indian imports from 25% to 50%. This last-minute move acts as a punishment for India’s continued import of Russian oil. Indian officials have been quick to condemn this decision. The final tariff rates will go into effect in only 21 days, on August 27. This combination creates a ticking clock for India to act in a serious manner.
The United States is India’s largest export market, comprising 18% of its total exports and contributing 2.2% to India’s GDP. Now, nearly all of India’s $86.5 billion in annual goods exports to the U.S. risk becoming commercially unviable because of steep tariffs. The possible repercussions from this disaster have the potential to be catastrophic. The only sectors that benefit from exemption from these additional tariffs are electronics and pharmaceuticals. Heavy industry, including textiles and gems and jewelry, as many as 14 million jobs, are soon to experience large-scale offshoring losses.
The economic impact of a 50% tariff would truly be profound. Some estimates suggest that even a 25% tariff would reduce India’s GDP by at least 0.2–0.4%, putting India’s growth this year below the 6% threshold. These economic tariffs threaten the stability of India’s growing economy. Yet, they run the risk of stymieing its inclusion in the advancement of global trade, particularly as other countries like Vietnam provide more favorable tariff lines.
India’s response to the tariffs has been strong, calling them “unfair” and “unjustified.” The Indian government has vowed to take “all actions necessary to protect its national interests.” Even the former central bank governor Urjit Patel expressed his concerns about the latest tariff hike as a realization of India’s “most terrible apprehensions.” He stressed the importance of the forthcoming trade negotiations. He cautioned that if no deal is made, it could lead to a “pointless trade war.”
The tariffs appear to serve a dual purpose for the Trump administration: to curb Russia’s oil revenues and to compel President Vladimir Putin into a ceasefire regarding ongoing geopolitical tensions. India has not been alone in continuing to purchase Russian oil. Yet China and Turkey, too, are closing ranks as defenders of deepening energy ties with Russia. That raises fundamental questions. So why has the U.S. chosen to specifically punish India, especially given its critical role as America’s most important strategic partner in the region?
Ajay Srivastava of the Global Trade Research Initiative (GTRI) argued that these tariffs could force India to reconsider what strategic partnerships they form. He argues that India stands to gain from deepening ties with countries such as Russia and China. He noted, “One hopes that this is short term, and that talks around a trade deal slated to make progress this month will go ahead.”
The Indian government has historically been very reluctant to directly subsidize exporters. Which begs the question of whether its current trade financing and promotion strategies are up to the task of countering such a substantial tariff gap. Recently, analysts from financial services firm Nomura warned that the tariffs might function as a “trade embargo.” This development can lead to a sudden stop to exports of the affected products.
Rahul Gandhi characterized the situation as “economic blackmail” and “an attempt to bully India into an unfair trade deal.” His statements are indicative of an increasingly impatient and frustrated Indian leadership with respect to the U.S. handling of the trade relationship.
With the clock counting down to the implementation of the new tariffs, now is a crucial make or break decision time for India. The government must weigh its options carefully, balancing national interests with the need for continued economic engagement with the U.S. and other global partners.
Dr. Chietigj Bajpaee of Chatham House emphasized that India’s efforts to reduce reliance on Russian military hardware and diversify its oil imports predate pressure from the Trump administration. This unique historical context could give India some diplomatic capital in charting its international relations in the future.