The Indian government has vowed to “take all steps necessary” to defend its national interest after US President Donald Trump imposed a sweeping 25 per cent tariff on all Indian goods entering the US, along with an extra penalty for New Delhi’s purchase of Russian oil and weapons.
Calling the move “deeply disappointing”, officials in New Delhi emphasised that they were still committed to a bilateral trade agreement that is “fair, balanced and mutually beneficial”.
But behind that guarded optimism lies a major blow: months of high-level negotiations and upbeat messaging from Indian ministers have ended in one of the harshest trade penalties India has ever faced from Washington.
“The government is studying the implications of the US President’s statement and remains committed to protecting farmers, entrepreneurs and MSMEs,” it said in an official response, as it did in a trade deal earlier this month with the UK.
Markets reacted sharply to Trump’s announcement. The rupee dropped nearly a percentage point in offshore trading, hitting a five-month low, and Nifty 50 futures fell by as much as 0.5 per cent.
Trump’s decision, due to take effect Friday, threatens to upend one of India’s biggest export success stories: its booming smartphone shipments to the US, largely driven by Apple’s contract manufacturers like Foxconn, Dixon Technologies and Tata Electronics. Indian-made iPhones, which now account for 44 per cent of US smartphone imports, could see their price advantage erased overnight.
According to Canalys, a global tech research firm, “The total volume of ‘Made-in-India’ smartphones grew 240 per cent year on year,” making the US India’s fastest-growing electronics market. Now, as Trump’s tariffs take effect 1 August, that momentum is under severe threat.
India’s mobile phone exports to the US soared from $2.2 billion in FY23 to $5.7 billion in FY24. “If the US doesn’t exempt high-end smartphones, Apple may shift production away from India,” one analyst warned.
Commerce Minister Piyush Goyal had recently said that trade talks were “progressing very well”. Finance Minister Nirmala Sitharaman called the relationship “strategic and forward-looking”. Both statements now appear embarrassingly premature.
Trump justified his action by attacking India’s trade barriers and close ties with Moscow. “India has tariffs that are among the highest in the world, and the most strenuous and obnoxious non-monetary trade barriers of any country,” he wrote on social media. “They have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY... INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A PENALTY FOR THE ABOVE.”
The unspecified penalty component is aimed at India’s energy and defence ties with Russia. India now imports more than a third of its oil from Russia and sources 36 per cent of its arms from Moscow.
“This is economic arm-twisting, plain and simple,” said Rakesh Mohan Joshi, Vice-Chancellor of the Indian Institute of Foreign Trade. “It undermines the spirit of partnership we’ve been working so hard to build.”
The new duties are expected to affect more than $10 billion to $12 billion of India’s annual exports. The list of potential losers is long. Among the most exposed are textiles and apparel. With $8 billion in annual exports to the US, the sector could lose up to $3 billion, industry estimates suggest. Gems and jewellery, especially cut and polished diamonds worth $10-12 billion, could see a $2 billion hit.
Auto parts and engineering goods, which are tied into global supply chains, are also vulnerable. This $15 billion export segment may lose $3 billion as US firms seek cheaper suppliers in Mexico or East Asia. India’s seafood sector could lose $1.5 billion from its $7 billion US trade as buyers turn to cheaper suppliers in Latin America. Only generic drug exports have been spared the new duties.
Economists fear the 25 per cent base tariff, combined with the looming Russia-linked penalty, could push effective duties much higher, putting India at a deeper disadvantage compared to peers.
Trump has warned of “secondary sanctions” on countries buying oil from Russia. Washington sees the purchases as bolstering Russia’s economy as it wages war against Ukraine and blunting the impact of Western sanctions. Trump’s tariff announcement came just a day after he abruptly shortened Russia’s deadline to conclude a ceasefire deal with Ukraine to 10 days.
Critics said Trump’s measures jeopardise years of US diplomatic efforts to position India as a strategic counterbalance to China in the region while the opposition Congress said the latest US move proves the much-touted Modi-Trump friendship has delivered little in return.
While India’s US tariff rate now matches that of South Korea and Malaysia (25 per cent), it remains higher than Vietnam (20 per cent), Indonesia (19 per cent) and Japan (15 per cent).
India was one of the first nations to open trade talks with Trump’s administration and made several early concessions, including tariff cuts and relaxed rules on agricultural imports. But Washington viewed these as “half offers”.
S. C. Garg, former finance secretary, said, “India even started importing US energy at high cost to placate Washington. To now cite our Russia ties as a reason for tariffs is sheer blackmail.”
But Madhavi Arora, economist at Emkay Global, said the story isn't over. “We don’t think the trade-deal haggling is dead. This is also about geopolitical signalling,” she said.
The tariffs come after bilateral trade hit a record $118.2 billion in 2024, with India holding a $36.8 billion surplus. The US accounts for over 17 per cent of India’s total exports.
Washington had previously pushed for greater market access for US agricultural goods, medical devices and genetically modified crops, areas where New Delhi had resisted, fearing the domestic impact.
Kevin Hassett, Chair of the White House National Economic Council, defended the tariffs, saying India must open up its markets. “If we could do that in India, it would be an absolute game-changer for the global economy,” he told CNBC.
While the two sides finalised a framework for a broader trade pact after Vice-President J. D. Vance’s visit to India in April, and agreed on a fall deadline, Trump’s tariff blitz threatens to derail it.
Still, some observers believe the pressure could reignite negotiations. “India remains too big a market and too important a strategic partner to shut out entirely,” said Raymond Vickery of the Centre for Strategic and International Studies. “This is transactional brinkmanship but the window for diplomacy is still open.”
Trump, however, took a further swipe at India later in the evening by announcing that the US would help Pakistan to develop its "massive oil reserves". He twisted the knife even further saying: "Who knows, maybe they'll be selling oil to India some day."
While India’s GST on imports looks elevated, it is partly compensating for the lack of equivalent GST or VAT in the US. Once these tax differences are adjusted for, the actual “protectionist” import duty is closer to 10 per cent, which is not as high as it may seem at first glance.
India’s 28 per cent GST on US luxury imports – most American imports fall into the luxury category – can be seen as a way to balance out the tax differences between the two countries. In the US, consumers typically pay an average of 7.5 per cent in state and local sales taxes.
When the fact that India’s tax structure imposes the same taxes on imports and domestic products is also considered, Trump’s argument that India is being unfair to US exporters weakens. The question is whether US negotiators will buy this argument.