Assessing Donald Trump’s 50% Tariff on India

Talks for India and United States on the economic front have escalated rather disastrously. Contrary to Prime Minister Modi’s positive announcement to expand bilateral trade with the US to $500 billion by 2030 in February this year and statements of progressive negotiations following Union Commerce and Industry Minister’s visit to Washington and US Vice President’s visit to India in March and April respectively, India couldn’t prevent the catastrophic outcome. Trump’s announcement of the anticipated “big” trade deal with India in June surely measured up to be “big”, slapping an additional 25% tariff over the recently announced 25% tariff on Indian exports. New Delhi’s purchase of Russian crude oil came at a huge cost, as Washington’s 50% tariff on India took effect on Wednesday, affecting key sectors such as textiles, agriculture and seafood. With duties amounting to 16 percentage higher than China and 31 points higher than most south-east Asian countries, prompting investment house Nomura equating the situation to a “trade embargo”.

According to Commerce Ministry data, the US continued to be India’s largest trading partner with exports to the country’s standing at USD 8.01 billion while imports increased to about 13.78 percent in July this year. Evidently, a decrease in India’s GDP is expected as a consequence of weakening exports, overwhelming the pre-existing job crisis and decline in investment. Indian products are unlikely to withstand any competitive edge in the scenario of such massive taxes. Areas that could have immediate repercussions for the Indian masses is job loss as Periodic Labour Force Survey (PFLS) have recorded India’s Unemployment Rate (UR) at 5.6% in May, 2025 and June, 2025, a situation uncertain to improve as the major drop in US exports mainly targeted towards job-heavy sectors such as textiles, leather work and jewelry could hit several lakhs of workers.

This deep bilateral as well as geo-economic uncertainty provides a rather uncomfortable but pragmatic opportunity for India to straighten its priorities, focused on vehemently implementing policies instead of pompous announcements alone. A top priority is setting the narrative straight that India refuses to conduct trade deals to meet deadlines, refusing to be coerced by Washington’s unilateral actions. Trump’s arbitrary actions have been cited as unconstitutional by leading world economists Jeffery Sachs, who stated that the rational of reciprocity is completely absent from the “reciprocal tariffs” introduced by Trump administration. Further stating that the US is using bilateral trade deficit as a measure of supposed unfairness. These tariffs have also been blocked by the US Court of International Trade, a specialised court that oversees trade policy.

India should continue to prioritise its national interests by refusing to strike a deal that does not favour the country’s interests. As a fast-growing economy, India’s prospect of picking up growth is more than its likelihood of failure. While US economy is large and significant, the tariffs are harmful to both parties in varying degrees. India is heavily dependent on crude oil, standing third amongst the world’s top consumers and the largest buyer of Russian seaborne oil. Momentarily, this heavy dependence and close bilateral relations with Russia across defence and energy sectors serves India’s national interests. Besides this is a good opportunity to put India’s concerted push for self-reliance to a litmus test, as Modi urges citizens to prioritise purchasing goods that are made in India.

Improving efficiency and quality of Indian products are vital to garner domestic consumption and induce competition among domestic products providing more alternatives for domestic consumers. Additionally, another opportunity for India out of this crisis is vital need of export diversification and geo-economic balancing that India needs to act on- India has accelerated trade talks with EU, ASEAN, UK, Oman, Chile and others, simultaneously building export promotion in 50 key countries across West Asia and Africa, free trade agreements with Australia, the UAE and UK. Another key move is to strengthen ties with regional powers like China and Russia to reduce over-reliance on the US market.

India is carefully warming up to Chinese investments as part of its strategic pivot in response to escalating US tariffs. China’s Foreign Minister Wang Yi’s visit to Delhi in August for border talks signalled positive response from both parties. Also, Modi is attending the SCO Summit in Tianjin, China after continued cold bilateral relations since the 2020 Galwan clash, the worst Sino-Indian border face-off in more than 40 years, further cements strategic measures to have China on India’s side.

Further, as part of diversification of exports, it is in India’s interests to pursue ASEAN, delve in markets world over, expand its reach in African Union (AU) as a number of Indian goods have potential for export to AU- the leading sector being digital technology, and prioritise establishing good trade ties with China. It is extremely critical for India not to lose sight of the overall world market and to be more agile in seeking potential markets as it attempts to find reasonable terms with the United States. Even after tariffs are withdrawn, whenever that happens, the current situation could potentially lock out India for the long haul in key markets like textiles, seafood and service sector as other leading competitors like China, Nepal, Turkey, Vietnam, Pakistan and other emerging economies stand to gain in the US market share out of India’s crisis.

Some of the measures that India is taking to cushion the impact of US tariffs are the announcement of tax cuts aimed at augmenting domestic consumption- prices of essentials to go down including that of food, textiles and cement. These economic reforms are directed to simplify compliance and revamp GST structure oriented towards growth if followed diligently could more than offset the impact of tariffs and spur consumption, though at the cost of reduced tax revenues. Economists opined that the following sectors could stand to gain from the new tax policies- India’s auto industry, manufacturing, logistics, housing and consumer goods. The GST reforms will pinch tax revenues as Indian economy is heavily reliant on its revenue, however Modi’s firm statement “India is ready to pay a very heavy price to protect its interests” reaffirms India’s pragmatic policy of securing national interests as its top priority.

In order to avoid such mishaps in the future, India’s economic ambitions should be consistent with practical implementation on the ground. For instance, India needs to heavily focus on infrastructure- in the power sector, transport sector, social infrastructure, human capital, etc. India has massive potential in business cutting across all sectors; service is an area where India can have sound returns from, with its already existing large workforce which is only expected to expand. As such, India needs to act to increase the purchasing capacity of the rising population for substantial economic growth. This tariff imposition has more optimistic takeaways for India given the rapid advances in digital technologies in which India is playing a dynamic part.

In hindsight, the US’ action on India seem more than just Russian oil as it has not taken any measures to curb China, which is the largest importer of Russian oil, and European Union, which is the largest importer of energy from Russia. Although some areas like pharmaceuticals have been exempted, it is a big blow to the US-India strategic partnership to contain China with growing co-operation on tech and defence. US-India five rounds of trade talks with no deal yet directs to miscalculated expectations and political misjudgement that broke down the deal between the two significant economic powers, whose bilateral trade is worth over $190 billion. Official statements from the US opined that New Delhi wasn’t ready to match what others offered. For instance, South Korea struck a deal with the US, securing 15% rate instead of 25%, offering $350 billion in investments, higher energy imports and concessions on rice and beef. What failed to be a diplomatic support in dealing with the US after it struck better deals with Vietnam, Indonesia, Japan and the EU is being labelled as tariffs imposed to curb India from “fuelling the war” in Ukraine. Another key factor of contention- US wants more leeway to Indian markets for American agricultural and dairy products, an adverse proposition for India as agriculture is a key domestic sector accounting for more than 40 percent of the country’s jobs.

The US’ unilateral actions have been criticised as it leaves vacuum for Russia and China to step in as reliable strategic partners for India; Russia-India trade relations continue to burgeon. More importantly, it has created a trust deficit in US-India ties, a diplomatic oversight. In spite of US foreign policy consistently maintaining India’s importance owing to shared democratic values and partnership in the Indo-Pacific region, Trump’s reactionary decisions make US policies unpredictable and unreliable. Trump-Modi bonhomie leading up to the “Howdy Modi” rally in Houston, followed by “Namaste Trump” in Allahabad during Trump’s first tenure in the White House, seem to have little relevance. Though good relationship with the US is vital, India should hold its ground against US show of power; India’s 1.4 billion market cannot be ignored by the US for long.

Dr. Ngipwem Rebecca Chohwanglim

(Comments can be sent to cngipwem@gmail.com)