The US tariff hit on India: What’s happening and what’s at stake?

The United States, under President Donald Trump’s administration, has imposed a hefty 25 per cent tariff, plus an unspecified penalty for buying Russian oil and weapons, on goods imported from India, a move that has sent shockwaves through the trade relations between the two countries. This decision follows months of negotiations, which ultimately failed to reach a satisfactory deal. The new tariff set to be imposed from August 1 is expected to impact a range of sectors critical to India’s economy, from electronics and pharmaceuticals to textiles and gems.

Why couldn't India and the US reach a deal?

Trade talks between India and the US have been ongoing for months, but several points of contention remain unresolved. Here are the primary reasons why the two countries couldn't finalise a deal:

1. High Indian tariffs: The US has long criticised India’s high tariffs on several goods, particularly in agriculture, which remain among the highest in the world. For example, India imposes nearly 39 per cent on agricultural products and up to 50 per cent on certain items like apples and corn. While India has been open to reducing these tariffs, it has resisted offering full access to its agricultural markets, fearing the impact on its domestic farmers.

2. Market access: The US has been pushing India to open up its agricultural and dairy markets to American exports, a demand India has been unwilling to fully meet. There is a major concern in India that allowing in large-scale imports of items like genetically modified soybeans, wheat, and corn could harm local farmers and disrupt the agricultural balance.

3. Geopolitical tensions: There’s also an underlying geopolitical element at play. India’s continued military ties with Russia, especially as it remains one of Russia’s largest buyers of energy and military equipment, have been a thorn in the side of US-India relations. President Trump has cited this as a major issue, criticising India for buying Russian oil despite global sanctions on Russia over its actions in Ukraine. But India, which imports 80 per cent of its energy needs, stated that maintaining diverse sources of energy is critical for its national economy.

4. Non-tariff barriers: The US has also raised concerns about India’s rising quality and safety barriers on imports. While these regulations are meant to protect local industries, they have been criticised for being restrictive and unfair to foreign exporters. This has been another significant roadblock in the negotiations.

Impact of the tariff on Indian sectors

The imposition of the 25 per cent tariff will have far-reaching consequences for key Indian industries that depend heavily on exports to the US. Here’s how various sectors are expected to be affected:

1. Smartphones and electronics

India’s electronics industry, especially its smartphone sector, is among the hardest hit. India recently overtook China to become the top supplier of smartphones to the US, with a 44 per cent market share in the June quarter of 2025. The new tariffs are expected to significantly raise prices for US consumers, making Indian smartphones less competitive. In 2025, Indian electronics exports to the US exceeded $3 billion, and this will likely decline as a result of the tariff.

2. Pharmaceuticals and generics

Pharmaceuticals, another critical export sector for India, are also at risk. India is a leading exporter of generic drugs and active pharmaceutical ingredients (APIs) to the US, contributing over $7.5 billion annually. The higher tariffs could drive up the cost of these drugs in the US, potentially affecting access to affordable healthcare and weakening India’s position as the “world’s pharmacy.” Smaller players in the sector might suffer the most from these changes, especially if alternative suppliers from countries with lower tariffs, like Vietnam, begin to capture market share.

3. Textiles and garments

India’s textile industry, including garments, cotton fabric, and handloom products, is another area poised to feel the brunt of this tariff. The $2.5 billion worth of textiles exported to the US could face stiff price hikes, making Indian products less attractive to American buyers compared to competitors from other countries with lower tariffs, such as Vietnam and Indonesia. Smaller Indian exporters may find themselves squeezed out of the US market.

4. Gems and jewellery

Diamonds, gold jewellery, and other gems are a major export category, with the US importing $8.5 billion worth from India in 2025. The tariffs could make Indian gems less competitive in the global market, especially as other suppliers, including China and Thailand, can offer similar products with lower costs due to their favourable trade terms with the US.

5. Petroleum products

India exports about $20 billion worth of petroleum products to the US, including diesel, jet fuel, and LPG. This tariff is expected to add significant pressure on these products, especially as the US pushes for more stringent restrictions on imports, particularly from countries like India that are major buyers of Russian energy.

Broader impact on the Indian economy

The imposition of these tariffs comes at a sensitive time, as global supply chain disruptions and economic recovery post-pandemic have already put a strain on the economy. The US is India’s largest trading partner, and the $131 billion trade relationship is now under serious threat, as India will struggle to maintain its position as a major exporter to the US without making significant adjustments. The Indian rupee has already seen a dip in value, reflecting investor uncertainty about the long-term effects of the tariff.

India's government is now under pressure to mitigate the damage by exploring alternative markets like the European Union, the United Kingdom, and West Asia—regions where India has already signed new trade deals. However, given that the US remains India’s largest export partner, it’s unrealistic to expect these alternative markets to fully compensate for the losses in the US, at least in the near future.

India is already exploring ways to counteract the negative impact of this tariff by seeking to negotiate new trade agreements or make concessions in other sectors like defence and LNG exports. Prime Minister Narendra Modi and President Trump may hold further discussions to resolve this issue, but it remains uncertain whether a quick resolution is possible. The looming uncertainty in trade negotiations between the two countries is likely to continue impacting Indian exporters in the coming months.

While the US tariffs on India may seem like a short-term setback, their long-term implications could reshape the nature of US-India trade and India’s export-driven economy. The next few months will be crucial in determining whether India can regain its footing in the US market or if new trading alliances can fill the gap.