The India-US trade war has reached a critical stage with new tariffs from the US. Learn about the reasons, India’s response, economic impact, and future prospects in this detailed analysis.
Background of the India-US Trade War
The India-US trade war has entered a new and tense phase. The conflict began when the United States, under President Donald Trump, increased tariffs on Indian exports. On August 6, 2025, the US announced an additional 25% tariff on top of the existing 25% duty set in July. This brought the total tariff on certain Indian goods to 50%, the highest rate the US has imposed on any major trading partner except Brazil.
These duties impact numerous industries, such as textiles, jewelry and gems, leather, marine goods, chemicals, and automotive parts. Almost half of India’s exports to the US are now at risk. Nonetheless, certain industries like pharmaceuticals, semiconductors, energy items, and essential minerals remain unimpacted. The heaviest burden falls on industries that depend on labor, like textiles and jewelry, where countries like Vietnam, Bangladesh, and China now enjoy a price advantage due to lower tariffs.
India’s Response to the Tariffs
Prime Minister Narendra Modi responded strongly to the tariff increase. During the MS Swaminathan Centenary Conference in Delhi, he emphasized that safeguarding farmers, fishermen, and the dairy sector continues to be his highest priority. He made it clear that India will not compromise these sectors, even if it comes at a cost.
On August 8, 2025, Modi called an emergency cabinet meeting to tackle the crisis. The government opted for multiple essential measures:
Support vulnerable export sectors through incentives and relief measures.
Consider possible retaliatory tariffs while assessing their global impact.
Keep communication channels with the US open to find a resolution.
Explore different markets to lessen reliance on the US
Safeguard food and energy security, with strict limits on agricultural and dairy imports from the US.
Economic Impact of the India-US Trade War
The United States is India’s largest export market, accounting for about 18% of India’s total exports and 2.2% of its GDP. The new tariffs will hurt exporters, especially small and medium-sized enterprises. Analysts forecast that GDP growth may decrease from 6.4% to approximately 6%. Engineering exports might decrease by $4–5 billion. The weaker rupee could also lead to higher costs for companies that rely on foreign loans, adding more pressure to the economy.
However, some reports suggest the overall effect will be moderate. According to the PHD Chamber of Commerce, the tariffs could reduce India’s total exports by 1.87% and GDP by 0.19%. Despite current tensions, India is still expected to remain the fastest-growing major economy. Key industries like IT services, FMCG, and banking are less exposed to US tariffs and may continue to perform well.
India-US Trade War: Reasons Behind the US Action
The US government has connected the tariff increase to India’s continued oil trade with Russia. The White House argues that the move is part of a broader response to Russia’s actions in Ukraine. President Trump has also paused trade talks until India changes its stance on this issue.
Experts believe the tariffs are also a way to pressure India on other trade matters. These include the stalled India-US trade agreement, high Indian tariffs on American goods, and restrictions on US agricultural and dairy imports. Other factors may include India’s close ties with BRICS nations, improving relations with China, and differences over global sanctions policies.
Future Prospects and Negotiations
Despite the current tensions, both India and the US plan to resume trade talks later in August 2025. The goal is to reach a comprehensive agreement that can restore stable trade relations. India remains firm on protecting its agricultural and dairy sectors, which have been the main points of disagreement in past negotiations.
The India-US trade war has already created uncertainty for exporters and investors. However, it has also encouraged India to explore new trade partnerships and focus on economic self-reliance. The decisions made in the coming weeks, especially those discussed in Modi’s cabinet meeting, will play a major role in shaping India’s trade policy and its position in global markets.
