What do Trump's 25% tariffs mean for India?

With the August 1 deadline now just hours away, India faces a major challenge in its trade relationship with the United States.

US President Donald Trump, in a post on Truth Social on Wednesday wrote, “Remember, while India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country. Also, they have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE - ALL THINGS NOT GOOD! INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A PENALTY FOR THE ABOVE, STARTING ON AUGUST FIRST. THANK YOU FOR YOUR ATTENTION TO THIS MATTER. MAGA!”

The US president also slapped a penalty, an unspecified over and above the 25 per cent, on for buying “a vast majority of their military equipment” and oil from Russia.

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Trump had earlier warned that Indian goods could soon face tariffs of up to 25 per cent unless a new trade agreement is reached, telling reporters aboard Air Force One on Tuesday, “India has been a good friend, but India has charged basically more tariffs, almost more than any other country.”

The announcement follows months of back-and-forth negotiations. India has so far resisted offering significant new concessions under deadline pressure, but has indicated that it may have to accept higher tariffs in the short term if an agreement is not sealed before the cutoff.

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Officials in New Delhi said talks have already gone through five rounds, with another round planned for mid-August when a US delegation arrives.

An Indian official, requesting anonymity, expressed cautious optimism, telling Reuters, “Talks are progressing well… A deal will soon be worked out.”

Why a US-India trade deal matters

India and the United States share not only a growing economic partnership but also important cultural and strategic links.

Bilateral trade in goods reached about $129-130 billion in 2024, with India running a surplus of roughly $45-46 billion. That surplus is largely driven by exports of pharmaceuticals, auto components, gemstones, and electrical goods.

For Washington, India is an increasingly important partner, one that successive US administrations have courted as a counterweight to China.

But Trump, who has long criticised what he views as unfair trade practices, has renewed pressure on New Delhi.

Earlier this year, he introduced a “world tariff” framework — a broad levy of 10-15 per cent on imports from countries without bilateral trade deals — and warned that tariffs could climb to 20 per cent or more if negotiations drag.

Trump has already raised tariffs in several areas, including a global 25 per cent duty on auto parts, and he has hinted at additional levies on pharmaceuticals.

The result: India’s exporters are staring at potential costs that could erode their price advantage in the US market, especially as Vietnam, Indonesia and other Asian competitors face slightly lower rates.

Where negotiations are stalling

When Prime Minister Narendra Modi travelled to Washington shortly after Trump’s second-term inauguration, expectations were high for a fast-moving deal.

Six months later, however, negotiations have stalled, and India has not secured relief from threatened tariffs. Commerce Minister Piyush Goyal has maintained an upbeat tone, recently telling Reuters that negotiators were “making fantastic progress.”

Yet sticking points remain.

India has consistently protected its agriculture and dairy sectors, rejecting US demands to allow imports of genetically modified soybeans and corn or to open the domestic dairy market to large-scale American producers.

These areas are politically sensitive in India, where small farms remain central to food security and rural livelihoods.

New Delhi has also pushed back on non-tariff barriers and is working on incremental tariff reductions in certain sectors, but those efforts have not been enough to avert the looming deadline.

Behind the scenes, Indian negotiators have reportedly proposed quota-based systems for sensitive imports — like those used in a recent UK trade agreement — that would gradually expand market access over several years.

What this has meant for traders so far

The uncertainty over tariff levels is already disrupting commerce. Buyers in the United States are holding back on placing new orders because they don’t know what final rates will apply.

Exporters rushed to send goods ahead of reciprocal tariff deadlines earlier this year, but orders for the next season — particularly for the key Fall-Winter window from October to March — are now in limbo.

India’s exporters are also facing indirect pressure from China’s tariff struggles. As US duties on Chinese goods increased, many Chinese manufacturers redirected shipments to Europe at sharply discounted prices.

This influx of cheap goods is making it harder for Indian exporters to maintain their share of the European market, compounding the impact of US trade tensions.

India’s top export items — pharmaceuticals, auto parts, gold and electronics — are especially vulnerable to the potential 25 per cent tariff.

At that level, Indian goods would face a tougher penalty than products from several larger partners like Japan and the European Union, as well as smaller trading nations like Indonesia and the Philippines.

The Brics tariff wildcard

Another factor clouding the picture is Trump’s broader tariff strategy toward Brics countries, which includes India.

The US president has threatened an extra 10 per cent duty on nations that continue buying Russian oil — a move aimed at pressuring Brics members economically.

“Also, they have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE — ALL THINGS NOT GOOD!” Trump continued in Wednesday’s social media post.

For Indian trade officials, the unanswered question is whether this Brics-specific levy would be stacked on top of the 25-26 per cent rate already being discussed.

Without the additional duty, India would compare favourably against competitors like China, where tariffs could reach 30-34 per cent, or Bangladesh at 35 per cent.

But if the Brics penalty is added, India’s relative advantage would narrow sharply, hurting sectors that rely on competitive pricing to maintain access to the US market.

But the US can’t afford to let India go

The US has been deepening its defence and security relationship with India for decades, viewing the partnership as a counterbalance to Beijing.

India has invited Trump for a defence summit later this year (possible referring to the Quad leaders’ summit), and some officials suggest a broader agreement could emerge from that meeting.

Meanwhile, multinational corporations are recalibrating supply chains away from China. Apple and its partners, for example, are investing billions to scale up iPhone production in India.

But the risk of punitive tariffs could make companies hesitate, slowing India’s ambitions to become a global manufacturing hub.

For now, it seems India will be facing the tariffs. “INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A PENALTY FOR THE ABOVE, STARTING ON AUGUST FIRST. THANK YOU FOR YOUR ATTENTION TO THIS MATTER. MAGA!” Trump concluded in the same post.

Ultimately, the outcome may hinge on the personal dynamic between Trump and Modi.

Trump has described his relationship with the Indian PM warmly and even claimed to have helped broker a ceasefire between India and Pakistan earlier this year — a claim New Delhi disputes.

With inputs from agencies