Tackling The Tariff Bully: India Stands Resolute

From Great Deal To No Deal

When it comes to the bilateral relationship between the US and India, the Trump 2.0 era began with great promise. In their meeting at Washington in February, President Donald Trump and Prime Minister Narendra Modi talked of taking bilateral trade between the two countries to US$ 500 billion by 2030.

As late as July, Trump would frequently say that the Bilateral Trade Agreement (BTA) with India was going to happen. Instead, by August, the mercurial, unpredictable, and transactional US President had unleashed a raft of protectionist barriers against the world — at levels unseen since the Smoot-Hawley Tariff Act of 1930 — with India being the worst sufferer. 

From Crisis To Opportunity

There are several questions facing India: What are the effects of Trump’s tariffs on India? Which sectors will they hurt the most? Which states will be most grievously impacted? What actions must India — especially the exporting states — take, to mitigate the impact of this tariff? How can India prepare for tariffs that haven't yet been imposed, but which Trump has threatened — on sectors like pharmaceuticals, electronic products, semiconductors, and energy? How can India convert the imminent crisis into a long-term opportunity?

Let's first have a look at tariffs, and their sectoral impact, with a recounting of the method in Trump's "madness".

Tariffs On India During Trump 1.0

In Donald Trump's dictionary, tariff is a "beautiful" word. Let's not forget that he had dubbed India as a “tariff king” during his first term, and slapped the following penalties: 25 per cent tariff on steel, 10 per cent on aluminium, effective from March 23, 2018.

He had also removed India from the generalised system of preferences (GSP) on June 5, 2019, which had, till then, enabled India to export goods worth US$ 6.3 billion to the US, duty free. It had then affected Indian exports of items like textiles, engineering goods, leather, and pharmaceuticals.

Though India filed a formal WTO dispute against Trump’s steel and aluminium tariffs in May 2018, it avoided taking any retaliatory action. However, once India was removed from the GSP in 2019, it retaliated with reciprocal tariffs on 28 American products on June 15, 2019, including almonds, apples, chickpeas, and lentils.

Tariffs On India During Trump 2.0

The current imbroglio exploded on August 15, when Trump abruptly expanded the 50 per cent tariff on steel and aluminium to include 407 derivative products that contained steel and aluminium. Among these products are auto parts, plastics, furniture components, machinery, construction materials, and speciality chemicals that either contain, or are contained in, steel or aluminium. 

This will bite India even if the punitive 25 per cent tariff is withdrawn. It will take some time to assess the total impact of the new tariff, given its embedded nature.

For example, the auto components sector will bleed badly, because India's export figures to the US stands at US$ 7.35 billion in FY 2025 alone, which is substantively more than the figure for the combined exports of iron, steel, and aluminium to the US, which stands at US$ 4.6 billion in the same period.

But that's not where the story ends. Because this trade rupture will cast its shadow on the strategic relationship between the two countries that has been painstakingly nurtured over the past two decades, as Trump blind sided India with the 25 per cent baseline tariffs on July 30, while keeping it engaged in the BTA negotiations.

These tariffs also put India at a substantive disadvantage vis-à-vis its peers, who were let off with lower tariffs, such as New Zealand and Israel (15 per cent); Indonesia, Pakistan, Malaysia and Thailand (19 per cent); Taiwan, Bangladesh, Sri Lanka, and Vietnam (20 per cent).

Then, through another executive order on August 6, he raised the tariff on India by another 25 per cent for buying Russian oil and gas, a regimen that takes effect from today. And he has also threatened to raise the tariffs further if India retaliates. 

With the punitive tariff, India now faces the highest tariff regimen with Brazil.

India Singled Out

India’s trade deficit with the US is US$ 45.7 billion. In comparison, China — which with the US has a trade deficit of US$ 295.4 billion — faces a tariff of 30 per cent. For the EU — which has a trade deficit of US$ 235.6 billion — the tariff is 15 per cent. Mexico, which has a trade deficit of US$ 172 billion, faces a zero per cent tariff rate. 

As for being punished for buying Russian oil, India has been singled out, while many countries, including the US, continue to buy Russian products. For example, China remains the biggest importer of Russian coal and oil, having purchased goods from Russia valued at US$ 129.07 billion in 2024.

Meanwhile, the EU remains the biggest importer of Russian CNG. In 2024, it bought Russian goods worth US$ 41.6 billion. Not to mention the US itself, which imported fertilisers, uranium, palladium, and aircraft parts from Russia worth US$ 3.2 billion in 2024. 

What Experts Say

Colombia University Economics professor Jeffrey D Sachs has called the punitive levy on India "the stupidest tactical move in US foreign policy". He added, "These tariffs on India are not strategy; they're sabotage that risks Washington’s relationship with one of its most important partners.”

He went on to say: "What the 25 per cent penalty tariff on India did overnight was to unify the BRICS countries." He further said, "Even if this 25 per cent penalty tariff is removed, the Indians have learned a lesson: You cannot trust the US." 

CNN's geopolitical expert Fareed Zakaria has, meanwhile, dubbed Trump’s tariff on India — while deepening US ties with Pakistan — as the "biggest foreign policy mistake" of Trump 2.0.

He has said: "Even if Trump reverses course, the damage is done. India believes America has shown its true colours. It's unreliable and willing to be brutal to those whom it calls its friends. India will feel that it needs to hedge its bets. Stay close to Russia and make amends with China."

What Is At Stake 

As per official data, India’s total exports in FY 2025 were US$ 820.93 billion, of which, merchandise exports were US$ 437.42 billion. This includes US$ 374.08 billion-worth of non-petroleum exports.

India's bilateral trade with the US in the same period stood at US$ 131.84 billion, including exports worth US$ 86.51 billion (up by 11.6 per cent from US$ 77.52 billion in FY 2024); while its imports amounted to US$ 45.33 billion (up by 7.44 per cent from US$ 42.2 billion in FY 2024.

It is worth noting that India’s merchandise export to the US is less than 20 per cent of its total exports. In other words, around 2 per cent of India's GDP is exposed to US tariffs.

What Is The Breakdown 

Of India's total exports to the US in FY 2024-25 (worth US$ 86.51 billion), the following sectors will be the worst affected:

• Electrical and telecom equipment: 14 per cent
• Textile and apparel: 13 per cent
• Gems and jewelleries: 12 per cent
• Nuclear reactors and its parts: 8 per cent
• Oil and oil derivatives: 7 per cent
• Chemicals and chemical products: 5 per cent
• Auto parts: 3 per cent
• Marine products: 3 per cent
• Plastic, rubber & related items: 3 per cent
• Miscellaneous items: 13 per cent

So far, approximately US$ 30 billion worth exports, covering pharmaceuticals worth US$ 10.5 billion and electric and electronic products and semiconductors, including smartphones and semiconductors worth US$ 14.6 billion, and petroleum products worth US$ 4.09 billion, are exempted from the Trump tariffs.

Given Trump's arm twisting, there is no guarantee that the above items will be spared for long. He has already threatened a 250 per cent tariff on pharma, and has put Apple on notice for assembling iPhones in India.

As per an analysis by ICRIER, US$ 60.85 billion (70 per cent of India’s total merchandise export to the US) is currently exposed to the 50 per cent tariff regime. That equals to 1.56 per cent of India's GDP and 7.38 per cent of its exports. 

Economists have assessed that the impact of these tariffs on the Indian economy will be 0.2-0.4 per cent of its GDP.

India Will Survive

Despite these tariffs, given the size of India’s domestic economy, and its relatively low dependence on exports, experts believe despite the short term setbacks, India will continue its march as the world’s fastest growing economy.

Global ratings agencies like S&P Global and Fitch concur, saying the enormous size of India’s domestic market will help cushion the blow.

However, in the short term, there will be substantive pain for labour-intensive and high value exports like gems and jewellery, textiles and apparel, auto parts, and agricultural products like shrimp. After the tariffs, Indian exports to the US will now be at severe disadvantage against Bangladesh, Pakistan, Vietnam and Sri Lanka (vis-à-vis textiles and apparel); Turkey and Thailand (gems and jewellery); Ecuador, Indonesia, and Vietnam (shrimp).

Let's get this straight here: Trump’s tariff is not about trade, but a threat to India’s sovereignty, which is non-negotiable. History shows India comes out of such threats successfully, as it did it after the 1991 balance of payments crisis, and again in 1998, when the US sanctioned India after the Pokhran nuclear tests.

India did not bend then. It won't do so now. It is time for India first, and negotiation from a position of strength. 

(This is Part 1 of a two-part series. Part 2 will examine how individual states will be impacted, and pathways to convert this crisis into opportunity)

(The writer is a former civil servant. Views are personal)