- What was being talked about all these months has befallen the Indian goods with Donald Trump announcing a 25% tariff with effect from 01st August 2025 alongside a threat to impose further penalties for buying Russian oil. In other words, the talks between the Indian side and the USA have failed to materialize in time that would have helped to avoid the imposition of the tariff, which will have a cascading effect on trade. What the imposition also means is that Indian effort, starting from Prime Minister Narendra Modi visiting the USA soon after Trump assuming office and subsequent bonhomie displayed at a few international forums, has failed to bear fruit to our liking. What does it entail for the Indian leadership to counter the move? Let’s dwelve further.
PC: Times Now
- Due credit must be accorded to the Union Government’s efforts till the last moment before the tariff deadline set in. It may appear, though, that India should have done the US trade deal before the deadline, but a quick resolution is still possible. Trump announced on his Truth Social megaphone, alongside Indian exports facing a 25% tariff, a penalty for being the largest buyer of Russian energy. It’s still not clear how much this would amount to, but if he enforces his threat of a 100% secondary tariff on Russian energy buyers, Indian goods could become prohibitively expensive in America. That’s the worst-case scenario, but the best isn’t rosy either. Consider the numbers. Last year, India exported goods worth $87.4bn to the US, its biggest market.
PC: SBS
- Pharmaceuticals, pearls, precious stones, phones, and ready-made garments were the major products. Indian manufacturers in these categories earn up to 30% of their turnover from the US. But with 25% import duty, either they or their clients will need to take a haircut. Or pass on the extra cost to US customers. But the latter two aren’t options when a rival like Vietnam is tariffed at 20% and does not face secondary tariffs for buying Russian energy. Pharmaceuticals are India’s biggest export to the US, worth over $12.5bn last year. Trump kept pharma imports out of his original Liberation Day tariffs in April, but is now talking about imposing up to a 200% tariff on meds to incentivize production at home. So, there’s a cloud of uncertainty over this sector already.
PC: CEPR
- Further, electronics – phones mainly – became a leading product category in the last couple of years, and India now supplies more than a third of phones to the US. Exports trebled in Jan-May, over the corresponding period last year. But Trump’s tariffs could change that. Note that a tariff-induced slump in demand for Indian goods would hurt the job market, already under pressure. A timely deal would have served India well, even allowing a small concession on Trump’s concerns. That’s the reason why other major economies like Japan and the EU chose not to start a tariff war with him, settling for a 15% tariff now to stay in the game. The door isn’t closed for India either. A US team visiting in late August should help reach the middle ground. Hopefully.
