On Wednesday, new increased US tariffs on imports from India took effect, raising the rate to 50% from the previous 25%. The Trump administration's decision, justified by India's purchases of Russian oil, is having a notable impact on India’s economy and trade relations.
The tariffs target products including textiles, footwear, jewelry, precious stones, chemicals, furniture, and sports goods. The tariffs strike hardest at small businesses, especially in the state of Gujarat. In Surat, known as the diamond capital of the world, most companies have cut production or closed, leading to job losses and workers being placed on forced leave. Some major firms are considering relocating production to other countries.
Estimates suggest India could lose up to $55 billion annually in exports and up to 0.5% of GDP. Export-driven industries are particularly affected. While exports to the US account for about 2% of India’s GDP, the consequences for many businesses are significant. The Indian government has announced support measures for exporters and is seeking new markets in China, the Persian Gulf, and Latin America.
Heightened tariffs have strained India-US relations. Five rounds of negotiations seeking relief ended without result; US officials rejected India’s request for special terms, increasing tensions.
More than half of India’s exports to the US—about $87 billion—are now restricted, and the US trade deficit with India reached $46 billion in 2024. As Indian goods have become less competitive, many US buyers have shifted to countries like Vietnam and Bangladesh.
India is working to minimize losses with new financial tools, preferential loans, and currency liberalization. A weaker rupee may improve export competitiveness, but high Indian import tariffs discourage global investors. Meanwhile, the country is balancing collaboration with Russia (for cheap oil) and strategic partnership with the US.
The situation is complicated by political factors: while Washington and New Delhi have increased diplomatic contacts, disagreements remain over energy and security. Upcoming elections in India’s agrarian sector also influence the debate over further tariff liberalization.
Reducing Russian oil imports could result in additional losses for both India and Moscow. In response, Russia intends to remain India’s main supplier, and PM Modi focuses on supporting local farmers.
Overall, the increased tariffs are pushing India to reconsider its trade strategy and seek a new balance in relations with the US, Russia, and other trading partners.
