In a significant escalation of trade tensions, former US President Donald Trump, now seeking a second term in office, has announced a 25 percent tariff and an additional penalty on imports from India, citing India’s continued purchases of Russian oil, weapons, and what he described as “obnoxious” trade barriers and high tariffs imposed on US products.

The announcement was made on August 1, during a policy speech in Ohio, where Trump outlined a protectionist economic plan aimed at reviving American manufacturing and reducing dependence on foreign imports.

The Indian government has officially responded to the move, with the Commerce Ministry stating that it is closely studying the implications of the tariff and assured that India will take all necessary steps to safeguard national interests.

Trump’s announcement and justification

During his address, Trump targeted multiple countries, including China and India, accusing them of “stealing American jobs” and “cheating on trade.” Specifically referring to India, he said:

“India keeps buying oil from Russia, weapons too. They’ve got high tariffs, and they don’t let our stuff in without harassment. That’s obnoxious. So we’re imposing a 25 percent tariff—plus a penalty—to make trade fair again.”

Trump’s reference to India’s energy and defence engagement with Russia has been a recurring theme in recent months. The Biden administration had previously raised concerns over India’s purchase of discounted Russian crude following the Ukraine conflict. Trump appears to be leveraging these concerns into campaign rhetoric as part of his broader “America First” policy platform.

According to Trump’s team, the 25 percent tariff applies to a wide range of Indian exports, including textiles, pharmaceuticals, automotive components, steel, and information technology products. The "penalty clause" is still being defined but may include tighter customs scrutiny and certification delays.

Commerce Ministry reacts cautiously

India’s Ministry of Commerce and Industry issued a statement following the announcement, stating:

“We have seen reports of tariff announcements by the US administration. The matter is being examined in detail. India will take all steps necessary to protect its economic and strategic interests, in line with its global commitments.”

Officials added that the government is in touch with stakeholders, including exporters and industry bodies, to assess the exact impact on trade, jobs, and supply chains. A meeting of senior officials from Commerce, External Affairs, and Finance Ministries has been convened to frame a coordinated response strategy.

Impact on Indian exports

The United States is India’s largest trading partner, with bilateral trade valued at over $191 billion in FY2024–25. Indian exports to the US were valued at approximately $118 billion, comprising major categories like:

• Pharmaceutical products

• Apparel and textiles

• Jewellery and precious stones

• Automobile parts and machinery

• IT and software services

Exporters have expressed concern over rising uncertainty and cost escalation, especially in labour-intensive sectors like garments, footwear, and chemicals.

The Federation of Indian Export Organisations (FIEO) said in a statement:

“The proposed 25 percent tariff and additional penalty could disrupt supply chains and reduce India’s competitiveness in the US market. We urge the government to engage in early dialogue with US counterparts.”

Industry insiders believe the pharmaceutical sector could be among the worst hit, given its reliance on the US market for generics and APIs. There is also fear of retaliatory sentiment spreading across US buyers and trade partners, further affecting order books.

Strategic context: Russia ties and defence deals

India’s relationship with Russia, particularly in the energy and defence space, has been under international scrutiny since 2022. Despite western sanctions, India has continued to import Russian crude oil at discounted prices, citing energy security and sovereign interests.

Moreover, India remains a major buyer of Russian defence hardware, including the S-400 missile defence systems, naval equipment, and fighter aircraft components.

Trump’s latest announcement is being seen by analysts as an attempt to pressurise India to distance itself from Moscow, especially as the West seeks to isolate Russia globally.

However, New Delhi has consistently argued that its foreign policy is independent and pragmatic, guided by national interest, strategic autonomy, and regional stability.

Past tensions and current revival

This is not the first time Trump has imposed tariffs on India. During his first term, he had revoked India’s Generalised System of Preferences (GSP) benefits in 2019, citing lack of reciprocal market access.

India had retaliated then with tariff hikes on US agricultural products, though both sides returned to the negotiating table subsequently.

The current imposition, however, is more sweeping and comes at a time of broader geopolitical churn, including rising tensions in the Indo-Pacific, strained US-China ties, and growing polarisation within US domestic politics.

With Trump back in campaign mode and using trade as a political tool, India may find it harder to negotiate without strategic recalibration or targeted trade-offs.

Political reactions in India

Opposition parties in India have demanded that the government clearly state its policy approach, especially regarding Russia. Congress leader Jairam Ramesh asked:

“Why is the government silent on the larger consequences of India’s growing dependence on Russian oil and weapons? This tariff hit is a warning signal.”

The Bharatiya Janata Party (BJP), however, defended the government’s position, saying India will not compromise its sovereign decisions due to external pressures. BJP national spokesperson Shehzad Poonawalla said:

“India’s foreign policy is based on national interest, not external threats. The government will handle this matter with firmness and diplomacy.”

Experts divided on way forward

Trade experts and strategic analysts are divided over the implications of Trump’s move.

Ajay Srivastava, former Indian trade negotiator, said:

“This is more of a campaign gimmick than a sustainable trade policy. But India must engage diplomatically and make clear the mutual benefits of open trade.”

Brahma Chellaney, strategic affairs expert, added:

“India cannot afford to cave into coercion, especially when its Russian ties are essential for national security. However, a quiet reset or diversification of oil sourcing might help ease tensions.”

Some have suggested that India could explore tariff-neutralisation schemes or incentives for exporters to maintain competitiveness in the US market. Others advocate widening trade partnerships with EU, ASEAN, and Africa to reduce dependence on the US.

WTO recourse and diplomatic options

India may also consider approaching the World Trade Organization (WTO) to challenge the unilateral tariffs, especially if they violate MFN (Most Favoured Nation) clauses or lack clear justification.

However, the WTO route is often slow and may not provide immediate relief. A bilateral diplomatic resolution through dialogue and phased adjustments could be more pragmatic.

India’s Embassy in Washington DC is expected to initiate engagement with the US Trade Representative (USTR) and Commerce Department shortly.

Conclusion

The imposition of a 25 percent tariff and additional penalty by Donald Trump on Indian imports is a significant blow to India-US trade relations, with potential repercussions across exports, diplomacy, and strategic cooperation.

The Upcoming IPOs in this week and coming weeks are BLT Logistics, Bhadora Industries, Highway Infrastructure, Parth Electricals & Engineering, Jyoti Global Plast, Essex Marine, Aaradhya Disposal Industries.

The Current active IPO are Flysbs Aviation, Cash Ur Drive Marketing, Renol Polychem, B.D. Industries (Pune), NSDL, Takyon Networks, Mehul Colours, M&B Engineering, Sri Lotus Developers & Realty.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.