Opinion: Trump’s tariff — how India should navigate the storm

New Delhi must absorb the tariffs temporarily without rushing into a one-sided deal

By Maj Gen Dr SB Asthana (retd)

On July 30, 2025, US President Donald Trump unveiled a sweeping 25 per cent tariff on Indian exports, effective August 1, alongside threats of penalties for continued purchase of Russian oil and military hardware. Justified by Trump as retaliation for India’s “far too high” tariffs and “strenuous and obnoxious non-monetary trade barriers,” the move severely disrupts an expanding trade partnership.

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More troubling is the proposed 100 per cent secondary tariff on nations dealing in Russian oil — especially damaging for India, which sources around 35 per cent of its crude oil from Russia. These measures risk entangling trade, energy security, and defence in a complex geopolitical crossfire.

Who Needs Whom?

India is the US’ ninth-largest trading partner, and the US is India’s top export destination. In 2024, bilateral trade (per Indian sources) stood at USD 136.7 billion — with India exporting USD 91.2 billion and importing USD 45.5 billion, yielding a USD 45.7 billion surplus for India. US data shows bilateral trade at USD 129.2 billion, with exports to India at USD 41.8 billion and imports from India at USD 87.4 billion.

This trade imbalance remains a sore point for Washington. While Trump has dubbed India the ‘tariff king,’ the actual weighted average tariff on US imports is under 5 per cent, well within WTO limits. However, India does levy higher duties on specific items like whiskey, wines, and automobiles — similar to protectionist policies adopted by many other nations, including the US.

India’s major exports to the US in 2024 included electrical and electronic equipment (USD 14.4 billion), pharmaceuticals (USD 12.73 billion), and precious metals and stones (USD 11.88 billion). Conversely, US exports to India comprised mineral fuels (USD 12.6 billion), precious stones (USD 5.31 billion), and machinery (USD 3.29 billion), along with soybeans (USD 2.2 billion).

Tariff Dynamics

Before Trump’s announcement, US tariffs on Indian goods averaged 2.5 per cent, while Indian duties ranged from 10 per cent to 80 per cent depending on the sector — with high rates on agricultural products like apples and rice. Non-tariff barriers, especially in agriculture and pharmaceuticals, have long frustrated US businesses. Trump has used tariffs as a pressure tool to counter the trade deficit under the guise of protecting US industries.

Alienating India, a key Indo-Pacific partner, will hinder US efforts to counter China, and could push India closer to the Russia-China-India alignment 

From India’s perspective, the US has ignored the significant American advantage in India’s services and education sectors. Furthermore, India’s obligations to safeguard farmers’ livelihoods, sensitivities regarding dairy products, ensure energy security, and maintain affordability restrict its capacity to yield to US expectations.

The Fallout

The 25 per cent tariff raises average duties on Indian goods to 27 per cent, affecting key sectors such as auto parts, electronics, steel, and aluminium. Even iPhones assembled in India may see price hikes. Projections suggest a 10 per cent to 50 per cent drop in Indian exports in these sectors — amounting to annual losses of up to USD 3 billion.

For US consumers, these tariffs will likely spark inflation, especially in healthcare affordability. Tariff revenues — estimated to constitute 5 per cent of federal income in 2025 — are intended to offset Trump’s tax cuts and support domestic manufacturing. Yet economists, including JP Morgan, predict a US GDP slowdown to 1.6 per cent and supply chain disruptions, given India’s crucial role in supplying generics, pharmaceuticals, and electronics.

Strategically, alienating India, a key Indo-Pacific partner, will hinder US efforts to counter China, and could push India closer to the Russia-China-India (RIC) alignment. India imported USD 40 billion of Russian oil in 2024, constituting around one-third of its energy imports. A 100 per cent secondary tariff on this trade would spike India’s import bill, increase inflation, strain fuel subsidies, and derail fiscal targets — especially problematic in an election year.

In defence, India’s 36 per cent dependency on Russian arms — down from 55 per cent in 2019 — makes it vulnerable to US sanctions, particularly regarding high-value systems like the S-400. While compliance compromises strategic autonomy, non-compliance risks further penalties. With the US seen as unpredictable, India may be inclined to take calculated risks.

Sticking Points, Inflexible Realities

Agriculture is India’s red line. The US demands greater access to India’s protected agricultural market, particularly in dairy and grains. But with 45 per cent of the population reliant on farming, India faces high political costs in liberalising this sector. India is unlikely to offer zero-tariff concessions like Japan or the EU, owing to security dependencies.

Textiles and gems, though less affected, may still lose market share to Vietnam and Bangladesh. In retaliation, India could target US exports such as soybeans and aircraft — although this could impact its aviation sector if the UK cannot meet shortfalls.

MSMEs, which drive Indian exports, would be severely impacted by higher US tariffs. Energy security remains paramount, and Russian oil provides affordable options that are not easily replaceable.

Strategic autonomy underpins India’s foreign policy. Aligning too closely with either Washington or Moscow would compromise this balance. Given Trump’s policy unpredictability, abandoning a reliable partner like Russia seems unjustified.

Strategic Options

Trump’s tariff blitz leaves India with limited but critical choices. These include:

• Negotiate a selective trade deal: India may pursue a limited deal, lowering tariffs on non-sensitive imports like machinery, liquor, hydrocarbons, motorbikes, and soybeans — while resisting US demands on agriculture and dairy. It must stand firm on energy affordability for its vast poor population.India should absorb the tariffs temporarily without rushing into a disadvantageous deal. It should protect MSMEs, prioritise growth, and wait out the 10-day deadline on secondary tariffs, monitoring US–China negotiations.
• Diversify markets: India should expand exports to ASEAN, the EU, and Africa. Deepening ties with BRICS nations can also cushion the impact. Though these markets lack the scale of the US, diversification reduces dependency and future coercion risks. Aggressive pursuit of FTAs is essential.
• Strategic reduction in Russian trade: India can gradually diversify oil imports to the Middle East or the US, and broaden arms sourcing to France, Israel, and others. However, higher costs and strong Russia ties complicate this transition. India can redirect exports to ASEAN, the EU, and Africa, though with smaller profit margins.
• Self-Reliance: Strengthening the Atmanirbhar Bharat campaign for defence and tech manufacturing is vital. Past disruptions, like Covid, have shown India can localise supply chains when needed.
• Controlled retaliation: If unavoidable, India must retaliate proportionately with tariffs on high-profile US goods like aircraft, oil, whiskey, and motorcycles. Such a move risks escalation but may be necessary to defend sovereignty and prevent future coercion.

BRICS as Backup?

BRICS nations face similar US tariffs — 34 per cent on China, 50 per cent on Brazil. The concept of a coordinated BRICS response is attractive but lacks momentum. India-China rivalry and Russia’s economic constraints limit cohesion. While alternative payment systems (eg, rupee-ruble trade) are being explored, intra-BRICS trade at USD 700 billion pales in comparison to their USD 5 trillion trade with the US.

However, if Trump follows through with 100% tariffs on BRICS and 500 per cent on countries trading with Russia, he may inadvertently force BRICS closer. This could catalyse a realignment toward the RIC format.

Realistic Road Ahead

India’s optimal response blends diplomacy, economic recalibration, and strategic signalling. A selective trade deal protecting sensitive sectors while retaining competitiveness is key. Simultaneously, India must diversify exports, reduce reliance on Russian oil and arms incrementally, and boost domestic manufacturing.

By reinforcing its role as a democratic counterweight to China, India can retain geopolitical leverage while defending long-term interests.

Through smart negotiation, diversification, and strategic patience, India can weather the storm and emerge stronger, with a more resilient and self-reliant economic framework. Diplomacy, reform, and national resolve will be India’s guiding tools in navigating this turbulent phase.

(The author is a strategic and security analyst and a veteran Infantry General. He is Director Courses, United Service Institution of India)