Donald Trump imposed 50% tariffs on most US imports from India, making good on a threat to punish one of the world’s largest economies over its purchases of discounted Russian oil.
The tariffs, which came into effect just after midnight on Wednesday in Washington, risk inflicting significant damage on the Indian economy and further disrupting global supply chains
This month, the United States imposed tariffs of 25% on Indian goods. However, Trump announced plans to double the rate, citing New Delhi's purchases of Russian oil as an example. The White House has argued that these purchases are indirectly funding Russia's war against Ukraine. Since re-entering the White House in January, the president of the United States has significantly increased US tariffs on goods from a large portion of the world. This has put a strain on relations with the economies of both allies and rivals and fueled fears of higher inflation. Indian exporters now face some of the highest US duties that Trump has imposed on goods imported from overseas as a result of this latest move. Additionally, Brazil faces 50 percent tariffs on its exports to the United States.
India's ministers say that the country has been unfairly singled out because of its trade relationship with Russia. Officials say that as a result, the country will probably work more closely with Moscow and Beijing and move further away from Washington. Most Indian exports to the US (worth $87.3bn to the US last year, according to the US trade representative) now face steep duties, although some key products including smartphones are set to be spared, for now.
Some economists predicted a precipitous decrease in trade between the two countries as a result of the action, which was confirmed in a notice issued earlier this week by the US Department of Homeland Security. Trump stated last month on his social network, Truth Social, "I don't care what India does with Russia." "I don't care if they take down their dead economies together." The mood has been defiant in India. The country’s government has refused to halt purchases of Russian oil, and Narendra Modi urged Indians to buy local.
The prime minister stated on Tuesday that "all of us should follow the mantra of buying only goods that are ‘made in India,'" encouraging store owners to put up large signs promoting domestic goods. He continued, "We will bear it, even if [the tariffs'] pressure increases." Santanu Sengupta, the chief India economist at Goldman Sachs, expressed concern that sustained 50 percent levies could reduce GDP growth below 6 percent, from a forecast level of about 6.5 percent. Rival exporters from Turkey to Thailand, facing lower US tariffs, are already scooping up American buyers with offers of cheaper goods.
Approximately 30% of India's $27.6 billion worth of exports to the US remain duty-free, including pharmaceuticals, electronics, raw drug materials, and refined fuels. But order books are getting smaller for industries like seafood, gems and jewelry, and textiles, which have always relied on the American market. Sengupta stated, "Exporting is very difficult at a tariff of 50%." Already, the effects are evident. According to the Federation of Indian Export Organizations (FIEO), "worsening cost competitiveness" had already caused textile and apparel manufacturers in Tirupur, Delhi, and Surat to halt production. “Indian goods have been rendered uncompetitive compared to competitors from China, Vietnam, Cambodia, the Philippines and other south-east and south Asian countries,” said FIEO president SC Ralhan.
Prior to the tariffs, Indian shares plummeted, with the benchmark BSE Sensex falling 849 points, or 1 percent, to 80,876 on Tuesday in Mumbai. India's largest export market, the United States, receives nearly a third of shipments in important industries like textiles and jewelry, highlighting the potential economic impact.
Even if the tariff dispute goes away, the most likely casualty will be trust in the relationship with Washington in the future. Trump has destroyed it. A senior Indian trade official, who requested anonymity, stated, "The hard work between the two countries, which inherently did not trust each other but still managed to build a solid strategic relationship, is now at risk." "It will take a long time to restart, and it probably won't happen until Trump leaves office." The official continued, "At a working level, the countries must cooperate, but politically, neither can afford to appear weak." The external affairs minister S Jaishankar noted that Europe trades significantly more with Russia and that Washington's demand that New Delhi cease its purchase of Russian crude was "unjustified and unreasonable." He also accused the West of hypocrisy. India would have to replace roughly 42% of its oil imports in order to avoid the additional US tariff. While Trump has accused India of indirectly funding Russia's war against Ukraine through its purchases of Kremlin crude, he has not taken the same stance against China, a major buyer. He has also sought to diffuse tensions with Moscow, inviting Vladimir Putin to Alaska for a summit earlier this month and even mooting a trilateral meeting with Volodymyr Zelenskyy as part of efforts to end Russia’s invasion of Ukraine.
Despite tensions, Jaishankar said, US-India trade talks continue. He stated, "We are two big countries, we need to talk... the lines are not cut." Due to India's refusal to open its agricultural market to US farm goods for fear of harming the country's poor farmers, earlier hopes for a trade agreement limiting tariffs to 15% were dashed. India has turned its attention to Russia, which it describes as an "all-weather friend." Recently, Jaishankar went to Moscow to meet the president of Russia, who is expected to come to New Delhi later this year. In addition, Modi will travel to China for the first time in seven years to attend the summit of the Shanghai Cooperation Organization in an effort to stabilize relations after a deadly clash in the Himalayas in 2020 put ties on ice. India will approach China cautiously, but not fully. Another senior Indian official, who requested anonymity, stated, "India must do business with China despite the fact that there is a trust factor from the past with China and much history to reconcile." “The current [Trump] administration may set a record for the highest number of own goals with a top bilateral partner over such a short period of time,” said veteran South Asia analyst Michael Kugelman.
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