KATHMANDU: On August 6, 2025, US President Donald Trump escalated trade tensions with India by imposing an additional 25% tariff on Indian imports, bringing the total tariff to 50%.

This unprecedented move targets India’s continued purchase of Russian oil, which the US claims undermine efforts to sanction Russia over its war in Ukraine.

Trump criticized India for disregarding Ukraine’s suffering and warned that this tariff hike is only the beginning, hinting at more secondary sanctions to follow.

The new tariffs, effective August 27, have rattled markets and strained the historically friendly US-India relationship, raising questions about future trade and diplomacy.

This explainer focuses on the background, reasons, implications, and future impact of President Trump’s decision to impose a 50% tariff on Indian imports amid escalating US-India trade tensions.

What led to US President Donald Trump’s decision to impose a 50% tariff on Indian imports?

US President Donald Trump’s decision to impose a 50% tariff on Indian goods stems from India’s continued purchase of Russian oil, which Washington claims undermines its efforts to counter Russia’s actions in Ukraine.

On August 7, Trump signed an executive order slapping an additional 25% tariff on Indian imports, adding to a previous 25% already in place. This brings the total tariff on Indian goods to one of the highest rates globally.

The White House stated that Russia’s war in Ukraine poses a threat to US national security, necessitating tougher measures. India has become Russia’s largest oil customer, with Russian crude accounting for over 35% of its imports.

Trump accused India of ignoring Ukraine’s suffering and prioritizing its own gains. Although India maintains that its purchases are driven by market conditions and national energy security, the US sees the oil trade as a breach of Western sanctions.

The move followed failed trade negotiations between India and the US, despite earlier cordial ties between Trump and Prime Minister Narendra Modi. The announcement came shortly after US envoy Steve Witkoff’s unsuccessful diplomatic mission to Moscow.

The new tariff takes effect on August 27 and primarily targets sectors like textiles, gems, auto parts, and seafood.

How has India officially responded to the new 50% tariff announcement by the United States?

India has strongly condemned the new US tariff as “unfair, unjustified and unreasonable.” In a statement released by the Ministry of External Affairs (MEA), New Delhi rejected the decision and asserted it would take “all actions necessary to protect its national interests.”

India emphasized that its oil imports from Russia are based on sovereign decisions aimed at ensuring the energy security of its 1.4 billion citizens. The MEA called out the selective targeting of India, noting that other countries, including China and Turkey, also continue to purchase Russian oil.

India further pointed out that during the early phase of the Ukraine war, the US had encouraged Indian imports from Russia to stabilize global energy markets, especially after traditional suppliers diverted resources to Europe.

India’s response also underscored its long-held principle of strategic autonomy, especially in matters of foreign policy and trade. While reaffirming its energy security priorities, New Delhi insisted that its trade with Russia is legal and market-driven.

The MEA’s five-point response highlighted US inconsistency and warned that unilateral punitive actions by Washington could strain bilateral ties.

India’s tone, although firm, stopped short of declaring retaliatory tariffs, indicating a cautious yet assertive diplomatic stance in the face of the escalating dispute.

What sectors of India’s economy are most affected by the 50% US tariff?

The 50% US tariff disproportionately impacts several of India’s major export sectors that are both labor-intensive and key to its global trade.

According to estimates, around 55% of India’s total exports to the US fall under the affected categories. These include gems and jewellery, textiles, apparel, auto parts, leather products, and seafood — all of which are now subject to steep tariffs.

This poses a significant challenge to sectors that generate millions of jobs domestically and contribute heavily to India’s GDP. The Global Trade Research Initiative (GTRI) estimates that the new tariff could cut US-bound exports by 40–50%, severely denting revenue for Indian exporters.

While some sectors like pharmaceuticals, electronics (including iPhones), and IT services remain exempt for now, the overall damage to India’s export portfolio could be substantial.

The Federation of Indian Export Organisations (FIEO) has called the tariff “extremely shocking” and warned that it could derail trade momentum at a time when India is trying to position itself as a global manufacturing hub.

Analysts suggest that while India’s economy is diversified, the targeted nature of these tariffs puts pressure on politically sensitive sectors, forcing the government to consider fiscal or policy support to cushion the blow.

How have India’s financial markets and investor sentiment responded to the 50% US tariff announcement?

India’s benchmark equity indices tumbled in early trade on Thursday, August 7, as investor sentiment was rattled by US President Donald Trump’s decision to impose an additional 25% tariff on Indian exports, raising the total to 50%.

This move places India among the highest-taxed US trading partners and has sparked fears of a protracted trade standoff.

The BSE Sensex fell by 335.71 points to 80,208.28, while the NSE Nifty dropped 114.15 points to 24,460.05 during the morning session. The broader market reflected volatility, with Gift Nifty futures trading near 24,586 points, signaling a flat-to-negative trend.

Despite the sharp reaction in equities, the currency market showed relative stability. The one-month dollar-rupee non-deliverable forwards (NDF) suggested that the Indian rupee would likely open steady, close to its previous session’s close.

However, market analysts are beginning to warn of broader economic consequences if the tariffs persist. Dhiraj Relli, CEO of HDFC Securities, noted that if the 50% tariff remains in effect for a year, India’s GDP growth could take a hit of 30 to 40 basis points.

The sharp reaction in markets underlines investor anxiety about disruptions to export-dependent sectors and the potential for further escalation in US-India trade tensions.

What are the potential geopolitical implications of Trump’s tariffs on India?

Trump’s move to impose a 50% tariff on India over its Russian oil imports carries deep geopolitical consequences, potentially altering India-US relations and wider global alignments.

Despite being strategic partners, the sharp tariff escalation signals a breakdown in trust between New Delhi and Washington. It also places India in a small group of countries, alongside Brazil and Venezuela, that face the US’s harshest trade penalties.

This undermines the narrative of “friend-shoring” — the idea of strengthening trade with allies — and instead prioritizes Trump’s push for “onshoring.” The tariff comes amid growing friction, including Trump’s claims of mediating in India-Pakistan conflicts — which New Delhi has flatly denied.

In contrast, Pakistan has lauded Trump’s efforts, even suggesting nominating him for the Nobel Peace Prize, after walking away with energy-related deals from the US.

For India, the tariff is a test of its foreign policy balancing act between old allies like Russia and new strategic partners like the US. It could also push India to deepen trade ties with the UK, EU, or even China, to diversify its risks.

Ultimately, the move threatens to destabilize one of the most important bilateral partnerships in the Indo-Pacific region, with potential ripple effects across multilateral forums.

Why did trade negotiations between the US and India collapse before the tariff hike?

The breakdown of trade negotiations between the US and India occurred after months of talks failed to resolve key disagreements.

While India offered to scale back duties on US industrial goods and expand purchases in defense and energy sectors, it refused to reduce tariffs on politically sensitive sectors such as agriculture and dairy, which employ hundreds of millions of Indians.

Trump’s administration insisted on broad access for American farm and dairy products, similar to its stance with other countries like Canada, but India’s domestic political economy made such concessions difficult.

The impasse grew as Trump increasingly expressed frustration, labeling both countries “dead economies” and threatening steep penalties. Adding to tensions, India’s growing defense and energy ties with Russia, especially amid the Ukraine conflict, became a sore point.

Despite past personal camaraderie between Trump and Modi, the relationship was unable to overcome structural trade differences. The final blow came after Trump’s top envoy Steve Witkoff’s failed diplomatic outreach in Moscow.

As trade talks collapsed, Washington pivoted to punitive measures, reflecting a broader Trump strategy of using tariffs as leverage.

Analysts suggest that without mutual compromise on market access, especially in agriculture and digital services, trust between the two economies has severely eroded.

How might this tariff impact India’s economic ambitions and global manufacturing aspirations?

The 50% US tariff comes at a time when India is aggressively trying to reposition itself as a global manufacturing hub, particularly for companies looking to diversify supply chains away from China.

The move threatens to undermine those efforts by adding instability and increasing the cost of Indian goods in one of its largest markets.

For instance, Apple recently announced that all iPhones sold in the US will be assembled in India by next year. While electronics are currently exempt, a punitive tariff regime makes India less attractive for foreign investors wary of unpredictable trade barriers.

Analysts like Vina Nadjibulla point out that Trump’s emphasis on onshoring over friend-shoring discourages even allies like India.

Moreover, sectors that are not exempt — including textiles, gems, and auto components — are major job creators and foreign exchange earners. With estimates suggesting up to $8 billion in vulnerable exports, India may see reduced growth in these industries.

Additionally, the tariffs coincide with India’s ongoing free trade talks with the UK and EU. While these could offer alternative markets, they cannot immediately substitute for US volumes.

The unpredictability of US policy under Trump casts a shadow over India’s export-led growth and manufacturing ambitions.

What are the possible next steps for India and the US after the tariff imposition?

Following the imposition of the 50% tariff, both India and the US face crucial decisions that could shape the future of their economic and diplomatic ties.

India has so far refrained from retaliatory measures, instead focusing on asserting its position through diplomatic channels. The MEA has stated that India will take “all actions necessary to protect its national interests,” signaling that countermeasures are possible, though not immediate.

Experts like Ajay Srivastava from GTRI suggest India should avoid retaliation for at least six months and instead seek a reset in negotiations.

On the US side, Trump has hinted at even broader secondary sanctions and suggested that other countries could face similar penalties. His administration plans to monitor global purchases of Russian oil and recommend further actions.

Meanwhile, India may accelerate trade agreements with the UK, EU, and Southeast Asian nations to diversify its export base. Domestically, it could introduce subsidies or policy support for affected sectors.

Strategically, India must now walk a fine line between preserving its historical ties with Russia and sustaining its strategic engagement with the US.

While creative diplomacy is expected, the current impasse reflects a deep trust deficit, and rebuilding relations will require significant effort from both sides.