Post by : Meena Ariff

Photo: Reuters

The United States has announced steep new tariffs on goods from India, leaving officials and businesses scrambling to understand the full impact. The tariffs, set at 25% or more, were confirmed just before August 1, giving India very little time to prepare.

The decision comes from former U.S. President Donald Trump, who has returned to using harsh trade tactics to reduce America’s trade deficit. India, once called a “true friend” by Mr. Trump, now finds itself facing some of the toughest economic penalties in Asia.

India Caught Off-Guard by New Trade Rules

Indian officials had been in ongoing talks with their U.S. counterparts, expecting that discussions would continue into October or November, when Mr. Trump was expected to visit India as part of the Quad summit—a group of four democratic nations that includes India, the U.S., Japan, and Australia.

Instead, India received a sudden and sharp blow. The new tariffs are not just economic tools—they are seen by many as an insult. Along with the tariff hikes, U.S. officials described India’s trade policies as “obnoxious”, criticized its purchase of Russian oil, and called it a “dead economy”.

Adding salt to the wound, Pakistan, India’s neighbor and long-time rival, was praised by U.S. officials and even promised a new oil exploration deal.

Impact on India’s Major Exports

India’s main exports to the U.S. include personal electronics, worth about $14 billion a year, and pharmaceutical products, valued at $10 billion. Initially, there was confusion about whether these products would be taxed.

Some business leaders believed smartphones and medicines were exempted, but later reviews of the official executive order suggested they might be included after all. This uncertainty has shaken market confidence.

In response to the news, India’s stock market dropped for two straight days. Indian and international banks also warned that these new trade rules could slow down the country’s economic growth in the coming months.

More Tariffs Could Be Coming

India is also worried about future penalties. In a separate message, Mr. Trump had said that BRICS countries—a group that includes India, Brazil, Russia, China, and South Africa—would face an extra 10% charge.

Then, on July 14, he added that if Russia didn’t agree to a peace deal with Ukraine within 50 days, countries doing business with Russia would be hit with “secondary tariffs” of up to 100%.

Since India continues to import discounted oil from Russia, there is concern that it might be targeted further. Trump even added that India would receive a “penalty” on top of the 25% tariffs for continuing trade with Russia.

India’s Oil Purchases Already Affected

Analysts believe the new U.S. stance is already changing behavior. Indian oil refiners have reportedly started reducing their imports of Russian oil, out of fear of U.S. sanctions.

They are looking for new suppliers to diversify their energy sources, though Russian oil had helped India reduce its costs for years by offering lower prices than Middle Eastern oil.

At the heart of all this is America’s goal to lower its trade deficit. Encouraging India to buy more U.S. oil and gas would help the U.S. balance trade and reduce dependence on other regions.

In 2024, India exported $45.7 billion more to the U.S. than it imported. Most of India’s spending went toward buying oil. If a portion of this were spent on American energy, trade between the two nations could be more balanced.

Talks Break Down as Trust Is Shaken

There is also a breakdown in trust between Indian Prime Minister Narendra Modi and Mr. Trump. Despite previous friendly interactions, the harsh tone of the new tariffs and Mr. Trump’s angry social media posts have created a difficult atmosphere for future discussions.

It was reported that Mr. Trump had planned to speak to Prime Minister Modi by phone to resolve some issues. However, India was nervous about sudden changes or public pressure.

A top U.S. official accused India of delaying trade deals, while Indian negotiators said the two countries have very different approaches. The U.S. prefers fast deals, while India’s system is slow and cautious, especially with sensitive areas like agriculture.

For example, India’s recent trade agreement with Britain took nearly three years to complete, involving multiple leaders and rounds of talks.

India’s Official Response

On August 1, India’s Foreign Ministry issued a calm and respectful response, reminding the world of the strong relationship between India and the U.S.. The statement highlighted their Comprehensive Global Strategic Partnership, established in 2013.

The ministry said the two countries remain connected by shared interests, democratic values, and strong people-to-people ties. India chose to stay focused on long-term goals rather than react emotionally to the latest developments.

“This partnership has weathered several transitions and challenges,” the statement read. “We remain focused on the substantive agenda… and are confident that the relationship will continue to move forward.”

While the situation looks difficult now, many believe that India and the U.S. will continue working together. Their deep economic, political, and cultural ties are not easy to break, even when leaders disagree.

Still, for Indian businesses and officials, the coming weeks will be critical. They must understand the full impact of the new tariffs, adjust their trade plans, and prepare for more possible penalties.