WASHINGTON, D.C. — Late on Thursday, US President Donald Trump officially put a 25% tariff on Indian goods. This was a big step up in his global trade war. It was part of a big executive order that struck dozens of trading partners with additional taxes. This decision, which took effect as the Friday deadline drew near, has had an impact on financial markets all over the world.
The Republican government moved forward with a trade policy that was first outlined in April, which had an immediate effect on the market. On Friday, global shares plummeted, with Europe’s STOXX 600 index down 1.8%, and Wall Street beginning significantly lower. The Sensex and Nifty, which are the main stock market indexes in India, also dropped, by 0.72% and 0.82%, respectively.
Goods coming from India will now have to pay a 25% tax, plus an extra “penalty” that hasn’t been made clear yet but is tied to India’s large imports of Russian oil. This punishment comes after trade talks between Washington and New Delhi broke down, mostly because they couldn’t agree on how to get into India’s agricultural and other sensitive industries. India has strongly opposed letting American products into its labor-intensive farming sector without any restrictions.
The Bigger Picture of Tariffs and India’s Place
Trump’s executive order set punitive charges for 69 trading partners in all. As the deadline of 12:01 AM EDT on August 1 approached, these countries had to pay a lot of taxes: 35% for Canada, 50% for Brazil, 20% for Taiwan, and 39% for Switzerland. Goods from countries not specifically included in the order will be taxed at a base rate of 10%. On August 7, all of these new taxes will go into effect.
The tariffs put India in a very bad position relative to some of its competitors in the area. Thailand, Indonesia, and Malaysia would have to pay 19% in tariffs, while Bangladesh and Vietnam will have to pay 20%. This difference could make India less attractive to US corporations looking for a place to source goods, notably in industries like textiles, cut and polished diamonds, tires, metals, and auto parts.
The Russian Oil Problem and Its Economic Effects
India sells $86.5 billion worth of goods to the US right now, which gives it a trade surplus of $41 billion. Analysts still expect a big effect on India’s overall exports, even if the Trump administration has reportedly spared some categories from extra taxes, citing national interest. These categories include electronics, pharmaceuticals, energy items, and vital minerals.
ICRA, a ratings agency, has already lowered its growth prediction for India’s GDP from 6.2% to 6.0%. They warn that if more penalties are enforced, the growth forecast might go down much more. The Global Trade Research Institute (GTRI) thinks that India’s goods exports could drop by as much as 30%, to as low as $60.6 billion in FY26.
An ICRA report said, “The tariff announced for India is higher than those of other Asian countries like Vietnam (20%), Indonesia (19%), and Japan (15%). This could make India less appealing as a sourcing destination, especially in sectors like textiles, cut and polished diamonds, tires, metals, and auto parts.”
India’s continuous imports of cheap Russian energy are still a major subject of dispute. Washington sees this as making it harder to limit Moscow’s export profits and force President Putin to negotiate about peace in Ukraine.
Prashant Vashisht, senior vice president at ICRA, said, “India has a number of options for diversifying its crude purchases because Russian crude made up less than 2% of Indian crude imports before FY2023.” But cutting off Russian oil from the international market might have a big effect on prices. Russian oil exports make up 7% of world liquids consumption, so prices would go up a lot.
He went into more detail about what may happen to India’s economy if crude oil prices went up: “A $10/barrel rise in crude oil prices would raise the oil import bill by about $13–14 billion.” Vashisht also said that messing with Russian energy exports could make it more expensive for India to buy gas and LNG from other countries.
Trade Talks That Have Stopped and Diplomatic Reactions
If New Delhi and Washington can reach a full trade deal, which they have been working on since February, one good thing could be that India’s tariff rate goes down. However, tensions over market access, especially in agriculture, as well as problems with tariff reciprocity and ongoing WTO cases have slowed progress.
Rick Rossow, who is in charge of the India chair at the Washington D.C.-based think tank Center for Strategic and International Studies (CSIS), said he was cautiously optimistic: “A trade agreement will have a big effect on speeding up our already strong economic relationship.” But an agreement would be more important for improving our overall strategic relationship. Not long ago, it seemed like any kind of trade agreement was unthinkable, but now we are almost there.
Basant Sanghera, a former US diplomat and managing principle at The Asia Group, said that if the agreement falls through, there will be missed chances. “If the trade deal doesn’t go through, it will be a missed chance.” The interim trade deal that is on the table is big, especially for the US-India economic relationship, and it sets the stage for future talks. Sanghera also said that the situation could get worse if both sides don’t take more active leadership.
People on Capitol Hill have also criticized the introduction of the tariff. Indian-American Congressman Ami Bera told HT, “As negotiations between the US and India continue, it is important that we work toward outcomes that show how strong our relationship is and move our shared strategic goals forward.” India is a valued friend and a partner in strategy. President Trump’s wrong and inconsistent statements do not show the bipartisan commitment to making our two countries’ ties stronger.