Trump’s 50% Tariffs on India Go Into Effect, Deepening Strategic Tensions

In a move that has escalated trade tensions, U.S. President Donald Trump’s decision to impose tariffs of up to 50% on goods from India has officially taken effect. The measure, which came into force on Wednesday, threatens to strain relations between the two strategic partners and poses a significant risk to India's economic growth.

The new tariffs add an additional 25% duty on Indian goods, specifically targeting its purchases of Russian oil, on top of a previous 25% tariff on a wide range of products. This brings the total tariff to 50% on key Indian exports, including textiles, gems, jewelry, footwear, sporting goods, furniture, and chemicals. This is one of the highest tariffs the U.S. has ever imposed on a major trading partner and could hinder India's position in its largest export market.

Ajay Srivastava, the founder of the Global Trade Initiative think tank in New Delhi, described the tariffs as a "strategic shock" that could threaten India's long-term foothold in labor-intensive American markets, exacerbate unemployment in export centers, and weaken India's participation in global value chains. He warned that competitors like China and Vietnam could benefit, potentially sidelining India from key markets even after the tariffs are lifted.

Russian Oil Standoff at the Heart of the Dispute

The tariffs have shocked Indian officials, especially following months of trade talks between New Delhi and Washington. The relationship has deteriorated significantly since Trump’s criticism of India for its continued purchase of Russian oil, which he claimed was financing Russian President Vladimir Putin’s war in Ukraine. In response, New Delhi has consistently argued that these purchases are crucial for stabilizing energy markets and has stated it will continue to buy Russian oil "based on financial benefit."

This strained dynamic has prompted India to pivot away from the U.S. and strengthen its ties with the BRICS bloc. Both Beijing and New Delhi have worked to mend relations that soured after a deadly border clash in 2020. Indian Prime Minister Narendra Modi is expected to meet with Chinese President Xi Jinping on the sidelines of a security summit in China next week, marking his first visit to the country in seven years. Concurrently, India and Russia have pledged to increase their annual trade by 50% to $100 billion over the next five years.

Potential Economic Fallout and Domestic Measures

Amid these developments, a U.S. trade team postponed its scheduled visit to India, casting doubt on the possibility of finalizing a trade agreement by the fall—a goal set during Modi's White House visit in February.

According to Citigroup, the new 50% tariffs could pose a downside risk of 0.6 to 0.8 percentage points to India's annual GDP growth. However, some key industries, such as electronics and pharmaceuticals, remain unaffected. This includes new, large-scale investments from companies like Apple in Indian manufacturing facilities.

The overall economic impact might be mitigated by India's domestic demand-driven economy, where private consumption accounts for about 60% of GDP. While the U.S. is India’s largest export market, with exports reaching $87.4 billion in 2024, this only represents about 2% of India's total GDP.

To boost confidence, the Modi government has promised "next-generation reforms," starting with a comprehensive overhaul of the consumption tax. Officials in New Delhi are also meeting to formulate measures to support sectors like textiles and footwear, which are likely to be hit hardest by the tariffs.