Current Affairs

Trump’s 25% Tariff on India: Understanding India-US trade diplomacy

Author: VisionIAS Editorial Team

Jul 31, 2025Current Affairs9 min read

Trump’s 25% Tariff on India: Understanding India-US trade diplomacy

On July 30, 2025, US President Trump announced a 25% tariff on all Indian imports.

The US President Trump, on July 30, 2025, declared a 25% tariff on India, effective from 1st August, 2025. This announcement was paired with a yet-to-be-specified “penalty” concerning India’s acquisitions of energy and military assets from Russia. Such measures signify an escalation in US-India trade diplomacy, emphasizing the complex interplay between economic policy and geopolitical strategy in international affairs.

Since January 2025, the USA has taken tariff actions on some of its trading partners including India, announcing a 26% reciprocal tariff on India in April 2025 which was put on hold. The current tariff represents the implementation of this earlier decision with a slight reduction.

Table of Contents

Tariff Announcement: Reasons behind Tariff Imposition

US President Trump’s proclamation on Truth Social was direct.

The Trump administration has outlined multiple justifications for imposing tariffs on India:

Trade Deficit: The U.S. goods trade deficit with India was $45.7 billion in 2024, representing a 5.4% increase from 2023. This growing imbalance has been a concern for the Trump administration, which views such deficits as evidence of unfair trading relationships.

India’s alleged Non-monetary Trade Barriers: The US considers India’s agricultural subsidies and sanitary and phytosanitary (SPS) measures for food safety as constraints for US exports. These measures, while defended by India as necessary for domestic food security and safety standards, are viewed by Washington as protectionist barriers that limit American agricultural access to Indian markets.

India’s BRICS Membership: The bloc is viewed by the USA as anti-dollar and a challenge to American economic hegemony. India’s participation in BRICS initiatives, including discussions on alternative payment systems and trade mechanisms, has raised concerns in Washington about the long-term implications for dollar dominance in global trade.

India-Russia Relations: An unspecified penalty is to be imposed due to India’s Defence and Energy imports from Russia. The USA in its proposed Russian Sanctions Act, 2025 aims to impose 500% duties on countries that buy oil or other petroleum products from Russia, indicating the severity of measures being considered.

This uncertainty of penalties whose scope and magnitude remain undefined appears to be designed to maximize pressure during bilateral negotiations.

India’s Trade Landscape with United States

The United States stands as India’s largest trading partner, with bilateral trade reaching $131.84 billion in 2024-25. Both countries seek to more than double bilateral trade to $500 billion by 2030 and negotiate a multi-sector BTA (Bilateral Trade Agreement). India’s exports to the US totaled $87 billion, spanning sectors from electronics and pharmaceuticals to textiles and gems. However, this relationship has been characterized by a US goods trade deficit of $45.7 billion in 2024.

Key Indian export sectors now facing tariff exposure include:

Electronics and Technology: India emerged as the largest iPhone exporter to the US in Q2 2025, contributing 44% of iPhone exports. The tariffs threaten to disrupt Apple’s plans to expand manufacturing capacity in India to 60 million units.

Pharmaceuticals: India is the largest exporter of non-patented drugs to the USA, accounting for 50% of America’s generic drug supply. India’s pharmaceutical sector faces vulnerability given the margins in this industry.

Gems and Jewelry: With the US representing over 30% of India’s global jewelry trade, this sector faces challenges to competitiveness and supply chain disruptions.

Textiles and Apparel: Indian textile exporters are receiving calls to halt shipments, as the 25% price increase threatens to make products uncompetitive against regional competitors.

Comparative Disadvantage in Regional Context

The 25% tariff on India places the country at a competitive disadvantage compared to regional peers who have negotiated terms. Japan and the European Union face 15% tariffs, South Korea secured a 15% rate, Indonesia faces 19%, and Vietnam 20%. This disparity threatens to divert orders to countries, undermining India’s export competitiveness.

Legal Framework and WTO Considerations

The US justifies these tariffs under presidential authorities, including Section 232 of the Trade Expansion Act (national security), Section 301 of the Trade Act (unfair trade practices), and the International Emergency Economic Powers Act. The invocation of national security exceptions under WTO rules remains contentious, with the US arguing for interpretation while critics point to violations of multilateral trading principles.

India has reserved its right to impose retaliatory duties under WTO norms and has challenged US tariffs on steel and aluminum under Section 232. However, the paralysis of the WTO’s Appellate Body limits the effectiveness of multilateral dispute resolution mechanisms.

Government and Industry Response

India’s Official Response

The Government of India has taken note of the US President’s statement concerning bilateral trade and is studying its implications. The Ministry of Commerce and Industry issued a measured response emphasizing continuity in diplomatic engagement.

Over the past months, India and the United States have been engaged in negotiations aimed at concluding a fair, balanced, and mutually beneficial bilateral trade agreement. The government has reiterated its commitment to achieving this objective despite the tariff announcement.

The government emphasized its priorities, stating that it attaches utmost importance to protecting and promoting the welfare of farmers, entrepreneurs, and Micro, Small and Medium Enterprises (MSMEs). This stance reflects India’s consistent approach to trade negotiations, where domestic economic interests take precedence.

The government added that all necessary steps will be taken to secure the country’s national interest, as has been the case with other trade agreements, including the recently concluded Comprehensive Economic and Trade Agreement with the United Kingdom. This reference to the UK deal signals India’s willingness to engage in trade agreements while maintaining its core negotiating positions.

Industry Reaction

Industry bodies have expressed concern, with the Federation of Indian Export Organisations and sectoral associations highlighting supply chain disruptions and competitiveness challenges. The call for resolution and market diversification strategies reflects the private sector’s adaptation to evolving trade diplomacy realities.

Conclusion

The imposition of a 25% tariff on India represents more than a trade dispute. It embodies the intersection of economic policy and geopolitical strategy in international relations. This development underscores the challenge facing middle powers like India in maintaining strategic autonomy while navigating great power pressures.

For India, the path forward requires balancing economic interests with strategic objectives. The country remains committed to a fair, balanced and mutually beneficial BTA prioritizing welfare of farmers, entrepreneurs, MSMEs and its national interests. Accelerating market diversification, strengthening domestic resilience, and maintaining communication with the US administration while defending these core interests represent strategic imperatives.

The situation highlights the transformation of international trade diplomacy, where economic leverage serves geopolitical objectives. Navigating this complexity will require diplomacy, strategic flexibility, and a vision from both nations to ensure their relationship remains beneficial despite challenges.

As negotiations continue, the resolution will depend on both countries’ willingness to find common ground between economic interests and geopolitical objectives in a global landscape.

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