Trump hits Indian imports with 25% tariff starting Aug 1
The levies dash New Delhi’s hopes of preferential treatment over its regional peers
[WASHINGTON] US President Donald Trump said he would impose a tariff rate of 25 per cent on India’s exports to the US starting on Aug 1 and suggested he would add an additional penalty over the country’s energy purchases from Russia.
Trump in a post to Truth Social on Wednesday (Jul 30) said India had tariffs that were “among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country.”
“Also, they have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of energy, along with China, at a time when everyone wants Russia to stop the killing in Ukraine,” he added. “India will therefore be paying a tariff of 25 per cent, plus a penalty for the above, starting on August first.”
Trump’s announcement comes ahead of the Aug 1 deadline he set for imposing new import taxes on dozens of trading partners. The levies dash New Delhi’s hopes of preferential treatment over its Asian peers, who have secured tariffs ranging from 15 to 20 per cent. India had been among the first to engage Washington in talks, following Prime Minister Narendra Modi’s high-profile White House visit in February.
Responding to Trump’s announcement, an Indian official, who asked not to be identified, said New Delhi remains engaged with the US to ensure a mutually beneficial trade deal. Before the tariff announcement, Indian officials had said they would continue negotiating with the US for a bilateral trade deal by fall of this year, Bloomberg News reported earlier.
India’s rupee slumped and stock futures declined after Trump’s announcement. The Nifty 50 futures traded at the Gujarat International Finance Tec-City erased their gains to decline as much as 0.5 per cent, while the Indian rupee was down 0.8 per cent to 87.87 to a US dollar in offshore trading. It fell to a five-month low in onshore trading on the tariff threat.
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“While the trade talks appeared to have broken between the two nations, leading to US penalising India, we think that the trade saga and deal haggling isn’t necessarily over,” said Madhavi Arora, an economist at Emkay Global Financial Services “There is also a global geopolitical angle to these trade talks beyond just the pure economic angle.”
For much of this year, the Modi government had adopted a conciliatory approach towards Trump, revamping India’s tariff structure and offering several trade and immigration concessions to the US administration. Trump officials had also signalled for months that a trade deal with India was on the cards.
The tone appeared to shift in recent weeks, with New Delhi toughening its stance as negotiations hit a roadblock over contentious issues like agriculture. Trump also threatened countries like India and China with “secondary sanctions” for buying oil from Russia. Washington and other capitals allied with Ukraine view such oil purchases as a form of tacit support for Russia, helping to bolster its economy and undercut sanctions.
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Trump’s move could further strain already tense relations between the two countries. The US president has repeatedly insisted he used trade to broker a truce that ended a four-day armed conflict between India and Pakistan in May, an assertion vehemently denied by Modi and other top officials in New Delhi.
It also risks undermining the US’s longstanding efforts under previous administrations of cultivating India as a strategic counterweight to China’s rise.
India’s main opposition party said Trump’s announcement showed that the close ties touted between Modi and the US leader had not paid off.
Trump’s threat of additional penalties on India comes a day after he formally announced that he was giving Russia a new 10-day deadline to reach a truce with Ukraine in his bid to end the war.
India maintains strong economic and military ties with Russia, and has avoided criticising President Vladimir Putin for invading its neighbour. India became a major importer of Russian oil after the invasion of Ukraine in early 2022, buying more than a third of its overall purchases from Russia this year, according to data from Kpler. India also imports about 36 per cent of its weapons from Russia.
That energy reliance means “shifting to new suppliers can have a negative impact on India’s current account and inflation expectations, as well as weigh on sentiment towards local markets,” said Brendan McKenna, an emerging markets economist & forex strategist at Wells Fargo.
India and the US had already finalized terms of reference for a bilateral pact in April, following US Vice-President JD Vance’s meeting with Modi in New Delhi. That initial agreement outlined the framework for trade negotiations.
The US is India’s largest trading partner and top export market, with two-way trade reaching US$128 billion in 2024. New Delhi had attempted – but failed – to secure a limited trade deal with Washington during Trump’s first term.
The 25 per cent tariff rate is higher than the 20 per cent secured by Vietnam, 19 per cent for Indonesia and 15 per cent for Japan, putting India at a competitive disadvantage.
“India’s export prospects and investment appeal would be damaged, even more so should sectoral exemptions for smartphones and other electronics be phased out and each country’s respective baseline tariff applied,” said Alexandra Hermann, economist at Oxford Economics in London. BLOOMBERG
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