US Tariff On India: Game Not Over, Finer Print Unclear

Though Trump had been threatening to levy an additional penalty on India for importing Russian oil, the quantum has sent a shockwave across Indian policymakers and industry.

But all is not over. Much like Trump’s earlier announcements on tariffs on other economies, the fine print remains unclear, not only to New Delhi but also to Washington, though, effectively, the total tariff stands at 50 per cent as of now.

While the impact on a few key sectors like steel and pharmaceuticals is expected to be limited, other labour-intensive industries — textiles, gems and jewellery — will be severely hit.

According to consultancy firm Grant Thornton Bharat, at around US$ 87 billion in 2024-25, India’s merchandise exports to the US account for only about 2 per cent of India’s GDP, making it a modest share of the overall economy.

“Though the proposed 25 per cent additional tariff by the US is a drastic development, the impact, though notable, is unlikely to be severe,” said Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat.

The Apparel Export Promotion Council noted that the US is a key market for Indian ready-made garment exports. About 33 per cent of India’s total garment exports were directed to the US in 2024.

“India’s presence in the US garment market has grown, with its share increasing from 4.5 per cent in 2020 to 5.8 per cent in 2024. It ranks fourth among the top RMG exporters to the US,” Sudhir Sekhri, Chairman, AEPC, said.      

Lots Of Grey Areas Remain

Besides, the 25 per cent additional tariff on Indian exports kicks in only after 21 days of this order being issued, leaving a crucial three-week window for a diplomatic resolution.

The question now is: Will the US delegation visit New Delhi on August 25 to hold talks for the proposed Bilateral Trade Agreement (BTA) as was scheduled earlier?

“If the delegation sticks to the earlier plan of visiting India for BTA talks, then the dynamics would change, as it would show that the Americans are keen on thrashing out differences to put in place a trade deal that would benefit both countries… That's something we need to wait and watch,” Pankaj Chadha, Chairman, Engineering Export Promotion Council (EEPC) and Partner and CEO, Jyoti Steel Industries told The Secretariat.

Limited Impact Of Trump Tariffs

Unsurprisingly, Trump's move to impose penalties on India for purchasing Russian oil is largely being seen as a bargaining tool to gain greater market access in India's agriculture and dairy sectors, something Indian negotiators and policymakers have refused so far. 

Besides India, Brazil has also been slapped with a 50 per cent tariff. On Thursday, Brazilian President Luiz Inácio Lula da Silva spoke to Prime Minister Narendra Modi on the current geopolitical and geo-economic situation, and agreed to enhance bilateral trade engagements.  

India has steadfastly maintained that it will be driven by its national interests. A senior government official said that though challenges have risen following Trump's move, the Centre will do all it can to ensure that the economy is protected. 

A State Bank of India report noted that the global crude price may increase by 10 per cent if Russia, which accounts for 10 per cent of total global crude supply, halts supplies, even if other countries maintain their production at current levels. However, it added that if India stopped oil imports from Russia for the rest of the financial year, the country’s fuel bill could increase by only US$ 9 billion in FY26 and US$ 11.7 billion in FY27.

Besides, India, which has diversified oil suppliers, will have other crude sources to fall back upon. “But giving in to US pressure would mean that India is ready to let others interfere in its internal matters, and that will not be allowed,” a senior government official said.

Red Line On National Interests

In what is seen as a message to the US, PM Modi on Thursday said that India will protect the interests of its farmers, fishermen and those engaged in the dairy sector. 

In this context, the PM's visit to China for the Shanghai Cooperation Organisation (SCO) summit on August 31-September 1 will be eagerly followed. This would be his first visit to China since 2018. Ties between India and China had nosedived, especially after the Galwan clash in 2020.

Interestingly, National Security Adviser Ajit Doval, who is currently in Moscow to hold talks on enhancing cooperation in defence and energy sectors, informed that Russian President Vladimir Putin will be visiting India later in the year.  

Many experts have also questioned the US' move to singularly target India for purchasing Russian oil.