THE CONTEXT: In August 2025 the U.S. announced an additional 25 % tariff on many Indian goods, taking the total tariff burden on some items to 50 %. Stated reason is India’s continued purchase of discounted Russian oil and alleged violation of U.S. sanctions. Effective from 27 August 2025.
THE SCALE OF IMPACT
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- U.S. accounts for 17 % of India’s merchandise exports.
- CRISIL & Export Promotion Councils estimate 43 % potential drop in exports to U.S. from affected sectors in FY26.
- Moody’s estimates GDP growth shaved off by 0.3–0.5 percentage points in FY 2025-26.
THE SECTORS MOST AFFECTED
| Sector | Exposure / Nature of Impact |
|---|---|
| Textiles & Apparel (RMG, home textiles, carpets) | Tariffs rise to 60 %; loss of competitiveness vs Bangladesh/Vietnam. |
| Gems & Jewellery | Duty jumps from 2–3 % to 52 %; Surat small units hit. |
| Seafood (esp. shrimp) | U.S. is key buyer; anti-dumping duties + new tariff severely cut margins. |
| Leather & Footwear | Labour-intensive MSMEs vulnerable; orders shifting away. |
| Specialty / Organic Chemicals & Engineering Goods | High U.S. dependence; margin squeeze. |
INDIA’S RESPONSE
1. Diplomatic & Legal Pushback
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- India could lodge a formal dispute at WTO, arguing that the tariffs violate trade rules.
- Engage in high-level bilateral negotiations to seek rollback or carve-outs for key sectors.
- Leverage alliances with other affected countries to push back on U.S. trade coercion.
2. Trade Diversification
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- Rapidly expand market access to Africa, Latin America, Southeast Asia, Middle East, EU.
- Negotiate new free trade agreements (FTAs) and strengthen existing ones.
- Incentivize exporters to shift focus away from U.S. markets.
3. Domestic Support Measures
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- Fiscal stimulus, subsidies, and interest subvention for affected exporters (especially MSMEs).
- Strengthen export credit, insurance, and risk‑cover mechanisms.
- Encourage value addition and branding to reduce reliance on raw/labor‑intensive exports.
4. Supply Chain Reorientation
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- Boost “Make in India” efforts in intermediate goods & electronics so less reliance on low-margin labor exports.
- Enhance competitiveness via infrastructure, logistics, technology, and ease-of-doing-business improvements.
5. Selective Compromise
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- Explore calibrated reductions in Russian oil imports (if geopolitically and economically feasible) to remove one justification for U.S. pressure.
- Negotiate limited carve-outs or exemptions for sectors of strategic importance.
ETHICAL / POLICY DIMENSIONS
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- Trade fairness vs. sanctions politics: whether unilateral penalties violate WTO norms.
- Energy security vs. geopolitical alignment: balancing cheap oil purchases with strategic ties.
- MSME & employment impacts: how trade shocks ripple through labour-intensive sectors.
India–U.S. Trade: Biggest & Largest Facts
1. U.S. is India’s Single Largest Export Destination: The United States is the largest destination for Indian exports. In FY 2024–25, India exported over USD 86.5 billion worth of goods and services to the U.S., accounting for 19% of India’s total exports.
2. India is Among Top 10 U.S. Trading Partners: India ranks as the 8th largest trading partner of the United States (2024 data). Trade volume between the two was over USD 212 billion, including goods and services.
3. India Has One of the Largest Trade Surpluses with the U.S. In 2024, India had a trade surplus of USD 45.8 billion with the U.S. This is one of the largest bilateral surpluses the U.S. has with any country (after China, Mexico, and Vietnam).
4. U.S. is the Largest Source of India’s FDI Among Western Countries: The U.S. is among the top 3 sources of foreign direct investment (FDI) in India. Total FDI inflows from the U.S. to India (2000–2025) exceed USD 70 billion.
5. Gems & Jewellery Are India’s Largest Export Item to the U.S.: The U.S. accounts for over 40% of India’s gem and jewellery exports.
6. U.S. is the Largest Market for Indian Pharma: Indian pharmaceutical exports to the U.S. are the highest globally, contributing more than 30% of India’s pharma exports.
WAY FORWARD / RECOMMENDATIONS
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- Accelerate FTA negotiations with EU, UK, EFTA to reduce over-dependence on U.S. market.
- Strengthen domestic competitiveness (quality, cost) to withstand tariff shocks.
- Pursue dispute-settlement or consultation at WTO if tariffs breach rules.
- Provide targeted credit/insurance support for hit sectors during adjustment.
- Use diplomatic channels to frame India’s Russian oil imports as transitional, not structural, to seek tariff rollback.
CONCLUSION
Going forward, the resilience of this relationship will depend on how effectively both sides manage trade imbalances, geopolitical tensions, and market access concerns. Strategic dialogue, mutual concessions, and diversification of trade channels will be key to sustaining growth and stability in the India–U.S. economic corridor.
In essence, the India–U.S. trade partnership is not just about numbers—it is a reflection of broader strategic alignment, economic interdependence, and shared aspirations for a rules-based, inclusive global trading system.
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