U.S. tariffs on Indian goods spark trade war, threatening economic growth and straining diplomatic relations.
(The Post News)– U.S. President Donald Trump has launched a trade war against India, imposing a debilitating 50% tariff on nearly all Indian goods, the highest U.S. tariff in Asia. The action penalizes New Delhi for persistent Russian oil imports and jeopardizes decades-long efforts to build ties between the U.S. and India.
Washington tariffs, which came into effect on Wednesday, double the 25% tariff imposed on Indian exports. Trump had accused India of “financing Putin’s war against cheap oil” and pledged that Washington would no longer “turn a blind eye.”
India Pushes Back Against “Unjustified” Tariffs
India promptly condemned the move. External Affairs Minister S. Jaishankar labelled Washington’s urging to avoid importing Russian oil as “unjustified and unreasonable.” Jaishankar pointed out that European nations do much more business with Moscow.
Prime Minister Narendra Modi, too, came out with an aggressive stance. Addressing Delhi, he urged citizens to support local industries: “We should buy only Made in India products. Pressure on us may increase, but we will bear it.”
The U.S. remains India’s largest export destination, with exports standing at $87.4 billion in 2024. Economists warned that under a 50% tariff, key Indian goods like textiles, gems, jewelry, and seafood will be non-competitive in the U.S.
Goldman Sachs has set the range at 0.6 to 0.8 percentage points by which it expects the tariffs to bring India’s GDP growth below 6%. The decision has been referred to as a “strategic shock” by Ajay Srivastava, the founder of the Global Trade Research Initiative.
“India’s foothold in U.S. labor-intensive markets is being threatened. Vietnam and China will benefit at India’s expense, and even if the tariffs are rolled back, they might shut the door on us,” Srivastava stated.
Electronics and drugs are still exempt, sparing Apple’s new Indian factories and India’s massive exports of drugs. But industries dependent on America have already begun to reel. Textile clusters in Tirupur, Delhi, and Surat have closed shop as orders are drying up, the Federation of Indian Export Organisations said.
U.S.-India Relations Under Strain
The tariff decision caps months of stalled trade negotiations. A U.S. delegation scheduled to visit India later this month postponed its trip, raising doubts about reaching a trade deal by fall, a goal set during Modi’s White House visit in February.
One of India’s leading trade officials stated that the move dispersed respect and confidence: “Trump has blown it. The relationship took decades to build, and it will take years to repair. Probably not until Trump is out.”
India, once Washington’s poster child for the Indo-Pacific vision, has now drifted towards its BRICS allies. Moscow and New Delhi have agreed to increase two-way trade 50% to $100 billion in five years. Modi also wants to meet Chinese President Xi Jinping next week in Beijing at the security summit, his first visit to China in seven years.
American businesses are gearing up for higher costs. Importers of consumer products argue tariffs will raise prices for U.S. consumers, especially on apparel, jewelry, and seafood. Competing producers from Vietnam, Thailand, and Turkey already are offering to U.S. consumers at lower prices.
Nonsensical inflation fears aside, Trump is adamant. Posting on Truth Social, he wrote, “I don’t care what India does with Russia. They can take their dead economies down together.”
To the surprise of all, the Modi government is going all out for consumer incentives and tax reform. Suggestions are to simplify India’s confusing goods and services tax (GST) and new tax relief for families and small businesses.
Jefferies puts the GST reforms at $20 billion, spurring consumer spending. Morgan Stanley believes the steps altogether will augment the growth in GDP and ease the effect of declining exports.
Consumer consumption, which accounts for nearly 60% of India’s economy, will be at the forefront of resilience. “The silver lining can be that this external pressure induces long-delayed reforms,” wrote Natixis senior economist Trinh Nguyen.
Indian markets are still in a volatile state. The rupee is Asia’s weakest currency so far this year, as foreign investors have withdrawn almost $5 billion from Indian stocks since July. The benchmark BSE Sensex fell 1% on Tuesday, down 849 points to close at 80,876.
But some other economists opine that India’s domestic resilience is a cushion. “India’s growth is less dependent on exports and more dependent on consumption. If the government succeeds in maintaining consumer confidence, then the economy will be able to take the tariff shock,” Goldman Sachs chief India economist Santanu Sengupta added.
The tariffs are one of the largest breaks in recent relations between the U.S. and India since Washington began courting New Delhi as a counterbalance to Beijing. There are ongoing trade talks, but trust on both sides has been forfeited.
Experts warn that the current Trump administration could set a record for the number of diplomatic missteps taken with a key bilateral partner within less than four years.
With India vowing to continue importing Russian oil and Trump threatening to impose more tariffs, the impasse will not subside. What appeared to be a future alliance between the two nations is on the verge of breaking down into competition.
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