U.S. President Donald Trump’s doubling of tariffs on imports from India to as much as 50% took effect as scheduled on Wednesday, dealing a serious blow to ties between the two countries that became strategic partners after the turn of this century.
A punitive 25% tariff imposed due to India’s purchases of Russian oil adds to Trump’s prior 25% tariff on many imports from the South Asian nation and is expected to hurt growth in the world’s fastest growing major economy.
India’s trade ministry did not immediately respond to a request for comment. But an Indian government source said New Delhi hoped the U.S. would review the extra 25% tariff, adding that the government plans steps to help cushion its impact.
The U.S. move takes total duties to as high as 50% for goods such as garments, gems and jewellery, footwear, sporting goods, furniture and chemicals – among the highest imposed by the U.S. and on par with Brazil.
The new tariffs also threaten thousands of small exporters and jobs, including in Prime Minister Narendra Modi’s home state of Gujarat.
The Indian government source said the government is holding talks with exporters to increase shipments of textiles, leather, gems and jewellery to other countries, and is likely to provide financial assistance to affected businesses.
India’s existing trade agreements with the U.K., Australia, the United Arab Emirates and other European countries offer opportunities to boost Indian exports, particularly textiles, the source added.
Washington says India’s purchase of Russian oil helps fund Moscow’s war in Ukraine and that New Delhi also profits from it. India has rejected the accusation as double standards, pointing at U.S. and European trade links with Russia.
Commenting on the punishing levy, India’s junior foreign minister Kirti Vardhan Singh told reporters: “We are taking appropriate steps so that it does not harm our economy, and let me assure you that the strength of our economy will carry us through these times.”
“Our concern is our energy security, and we will continue to purchase energy sources from whichever country benefits us.”
There was no domestic market reaction to the move on Wednesday as bourses were closed for a Hindu festival but equity benchmarks logged their worst session in three months on Tuesday after a Washington notification confirmed the additional tariff.
The Indian rupee also continued its losing streak for a fifth consecutive session on Tuesday, ending at its lowest level in three weeks.
While the tariff disruption would be bruising, it may not be all gloom and doom for the world’s fifth-largest economy if New Delhi can further reform its economy and become less protectionist while seeking to resolve the crisis with Washington, analysts said.
Indian officials say the average tariff on U.S. imports is around 7.5%, while the U.S. Trade Representative’s office has highlighted rates of up to 100% on autos and an average applied tariff rate of 39% on U.S. farm goods.
FAILED TALKS
As the midnight activation deadline approached, U.S.
officials offered no hope for India to avert the tariffs.
Wednesday’s tariff move follows five rounds of failed talks, during which Indian officials had signalled optimism that U.S. tariffs could be capped at 15%, the rate granted to goods from some other major U.S. trade partners including Japan, South Korea and the European Union.
Officials on both sides blamed political misjudgment and missed signals for the breakdown in talks. Their two-way goods trade totaled $129 billion in 2024, with a $45.8 billion U.S. trade deficit, according to U.S. Census Bureau data.
EXPORTERS LOSE COMPETITIVE EDGE
Exporter groups estimate the tariffs could affect nearly 55% of India’s $87 billion in merchandise exports to the U.S., while benefiting competitors such as Vietnam, Bangladesh and China.
Rajeswari Sengupta, an economics professor at Mumbai’s Indira Gandhi Institute of Development Research, said allowing the rupee to “depreciate is one way to provide indirect support to exporters” and regain lost competitiveness.
“The government should adopt a more trade-oriented, less protectionist strategy to boost demand, which is already slacking,” she said.
S.C. Ralhan, president of the Federation of Indian Export Organisations, said the government should consider a one-year moratorium on bank loans for affected exporters, besides extending low-cost credit and easier availability of loans.
Sustained tariffs at this rate could dent India’s growing appeal as an alternative manufacturing hub to China for goods such as smartphones and electronics.
“Up to 2 million jobs are at risk in the near term,” said Sujan Hajra, chief economist at the Anand Rathi Group.
“Yet the bigger picture is less gloomy: India’s export base is diversified, its corporate earnings and inflation outlook remain intact, and domestic demand is robust enough to cushion the blow,” he said.
The U.S.-India standoff has raised questions about broader relations between the two countries, important security partners who share concerns about China, although New Delhi has signalled that it remains committed to the partnership.
India’s trade with US
Where India trades – and where tariffs bite
India’s top exports and imports from US: India’s top item of exports to United States
(Reuters)
