Impact of United States tariffs on the Indian economy

In August 2025, trade relations between India and the United States became tense. The U.S. government, led by President Donald Trump, put heavy import taxes on Indian goods. It started with a 25% tariff and later raised it to 50%. The main reason given was India’s continued purchase of Russian oil, even after Western countries had restricted it. These tariffs were among the highest ever placed on India by the U.S.

India’s Reaction

India called the move unfair and said its energy policy was based on national interest. The government explained that buying oil from different countries helps keep prices stable and ensures steady energy supply. Indian officials also said the country’s trade and energy choices are guided by strategic independence, not outside pressure.

Impact on Trade and the Economy

The higher tariffs directly hit Indian exporters, especially in industries like textiles, machinery, and pharmaceuticals that depend on the U.S. market. Indian economy growth is on track to become 3rd largest by 2028 and economists expected India’s exports to the U.S. to slow down in the short term, reducing foreign exchange earnings. Some analysts also warned that the trade gap between the two countries could widen, and the rupee might face pressure due to weaker export income.

Effects on Defense and Diplomacy

There were rumors that India had stopped new defense deals with the U.S., but the Defence Ministry denied this and said all ongoing projects were continuing. Even so, experts noted that such trade disputes can reduce trust and make defense cooperation more difficult in the future.

Background of the U.S.–India Partnership

For nearly two decades, India and the U.S. have strengthened their ties through trade, defense, and technology. Both are also members of the Quad—a group with Japan and Australia—created to keep peace and stability in the Indo-Pacific region. The sudden rise in tariffs, however, put this relationship under stress and raised doubts about future cooperation.

The Energy Disagreement

The biggest source of friction was India’s oil trade with Russia. The U.S. wanted India to cut these imports, but India argued that other Western countries were still doing business with Russia. India is already buying oil from Russia, the Indian officials said buying cheaper Russian oil helped control domestic fuel prices and supported economic growth during a time of global inflation, especially as U.S. sanctions on Russia affected global oil prices.

Economic Outlook

By late 2025, India was exploring new export markets in Asia, Africa, and Latin America to reduce its reliance on the U.S. market. The government also focused on boosting local manufacturing through initiatives like Make in India and Production-Linked Incentives (PLI). In October, India recorded its lowest retail CPI inflation in years at 0.25%, highlighting a period of price stability. Economists believe that while the tariff shock caused short-term challenges, it could push India to diversify its trade and strengthen its economic independence in the long run.