India-US Trade in 2025: How New Tariffs Impact the Economy

India-US Trade in 2025: How New Tariffs Impact the Economy

by

Discover how U.S. tariffs of 25-50% in 2025 impact India-US trade, valued at $131.84 billion. Explore affected sectors, economic effects, and India’s response in this analysis.

India and the United States share a robust trade relationship, but recent U.S. tariffs announced by President Donald Trump on July 30, 2025, have sparked concerns. With a 25% tariff on Indian imports effective August 1, 2025, and an additional 25% tariff for India’s trade with Russia, totaling 50% for non-exempt goods from August 27, 2025, businesses and policymakers are assessing the fallout.

This article explores the size of India-US trade, the sectors hit by tariffs, their economic impact, and India’s response strategy, packed with insights for readers seeking clarity on this evolving issue.

Understanding India-US Trade: Key Facts and Figures

India-US trade is a cornerstone of global commerce, with $131.84 billion in goods traded in fiscal year 2024-25. India exported $86.51 billion to the U.S. and imported $45.33 billion, creating a $41.18 billion trade surplus for India. Including services, India’s surplus is around $44.4 billion, though some analyses suggest a U.S. surplus of $35-40 billion when factoring in education, digital services, and arms trade. Both nations aim to scale trade to $500 billion by 2030 via a Bilateral Trade Agreement (BTA).

Must Read: India Slams US and EU Hypocrisy on Russian Oil Imports and Trade Tariffs

India-US Trade: India’s Top Exports to the U.S.

India’s exports to the U.S. span high-value sectors, making it a key player in global supply chains:

  • Electronics: India leads as the largest iPhone exporter to the U.S., holding 44% of U.S. iPhone imports in Q2 2025, valued at $14.6 billion.
  • Pharmaceuticals: Supplies 50% of U.S. generic drugs, worth $8.1 billion.
  • Gems and Jewellery: Exports of $9.94 billion, over 30% of India’s global jewellery trade.
  • Textiles and Apparel: Valued at $10.91 billion, including cotton garments.
  • Engineering Goods: Total $19.16 billion, with auto components at $2.8 billion.
  • Seafood and Agriculture: Marine products ($2.68 billion) and agricultural goods ($2.53 billion).
  • Chemicals and Plastics: Petrochemicals ($4 billion) and plastics ($1.92 billion).

India-US Trade: U.S. Exports to India

India imports critical goods from the U.S., including:

  • Energy: Crude oil ($4.5 billion), petroleum products ($3.6 billion), and coal ($3.4 billion).
  • Defense Equipment: The U.S. provides 13% of India’s arms, up from 8% a decade ago.
  • Industrial Goods: Electric machinery ($1.4 billion), aircraft parts ($1.3 billion), and gold ($1.3 billion).

U.S. Tariffs on India: What’s Happening?

On July 30, 2025, President Trump announced a 25% tariff on Indian imports, effective August 1, citing India’s high tariffs on U.S. goods and its trade with Russia. On August 6, an additional 25% tariff was added for India’s Russian oil purchases, raising the total to 50% for non-exempt goods, effective August 27. An unspecified penalty tied to Russia trade adds further uncertainty.

Tariff Breakdown

  • Baseline Tariff: A 10% universal tariff on all U.S. imports, plus a 15% reciprocal tariff for India, totalling 25%.
  • Additional Tariff: A 25% tariff for Russian oil trade, making 50% for non-exempt goods. Shipments loaded before August 6 and cleared by September 17, 2025, are exempt.
  • Exemptions: Pharmaceuticals, semiconductors, electronics (e.g., smartphones), and critical minerals are tariff-free. Steel and aluminium face separate duties (e.g., 50% on steel).
  • Russia Penalty: Could push tariffs to 35% or higher for some goods, based on prior BRICS-related threats.

How India Compares

India faces steeper tariffs than competitors:

  • Japan and EU: 15%
  • South Korea: 15%
  • Vietnam: 20%
  • Thailand and Cambodia: 19%
  • China: 30%
  • Pakistan: 19%

India-US Trade: Economic Impact of Tariffs on India

The tariffs affect $40-64 billion of India’s exports to the U.S., or 46-74% of total exports, hitting key sectors and influencing India’s economy.

GDP and Growth

Analysts predict a 0.2-0.5% GDP reduction in FY26:

  • ICRA: Forecasts a 0.3% drop, revising growth from 6.5% to 6.2%.
  • Nomura: Estimates a 0.2% hit, with potential RBI rate cuts.
  • Elara Capital: Projects a 0.2% decline if tariffs persist.

With exports at 2.5% of GDP, India’s domestic-driven economy cushions broader impacts.

Sectors Hit Hard

Non-exempt sectors face significant challenges:

  • Gems and Jewellery ($9.94 billion): The 50% tariff threatens jobs and supply chains.
  • Textiles and Apparel ($10.91 billion): Faces reduced demand, with exporters renegotiating prices.
  • Auto Components ($2.8 billion): Could see a 40% export drop due to higher costs.
  • Seafood and Agriculture ($5.21 billion combined): Loses competitiveness, especially for shrimp.
  • Chemicals and Plastics ($5.92 billion): Risks market share loss to lower-tariff nations.

Sectors Spared

  • Pharmaceuticals ($8.1 billion): Exempt, maintaining India’s generic drug dominance.
  • Electronics ($14.6 billion): Exempt, protecting iPhone exports.
  • Semiconductors and Critical Minerals: Exempt, preserving strategic roles.
  • IT Services ($33 billion): Unaffected, potentially gaining from rupee depreciation.

Financial Markets

  • Stock Market: A ₹5 lakh crore loss hit Indian markets on July 31, 2025, but recovery followed.
  • Rupee: Weakened to 87.72 against the dollar, stabilizing at 87.67 by August 7, 2025.
  • FII Flows: Tariffs may increase market volatility.

India-US Trade: India’s Response to U.S. Tariffs

India is countering the tariffs with strategic measures:

  • Trade Negotiations: A U.S. delegation will visit Delhi on August 25, 2025, for BTA talks. India offers zero tariffs on 40% of U.S. industrial goods but protects agriculture and dairy.
  • Retaliatory Tariffs: India may target U.S. steel and automobiles under WTO rules.
  • Market Diversification: India is eyeing the EU, ASEAN, and Middle East, with the India-UK FTA expected to generate ₹500 billion annually.
  • Domestic Support: Measures include lower export fees, MSME subsidies, and fixed-price agricultural supplies.
  • Energy Security: India defends its 35-40% reliance on Russian oil for affordability, noting the EU’s €67.5 billion in Russian LNG imports in 2024. It may reduce Russian oil if the U.S. offers competitive pricing.
  • Brand Building: Promoting Indian brands to boost global competitiveness.

India-US Trade: Geopolitical and Political Context

The U.S. tariffs partly stem from concerns over India’s trade with Russia, particularly its oil purchases, which some U.S. officials link to supporting Russia’s actions in Ukraine. India maintains that its Russian oil imports, constituting 35-40% of its supply, help stabilize global energy prices. Within India, discussions around the tariffs reflect diverse perspectives, with debates focusing on balancing economic interests and strategic autonomy.

Must Read: Trump Imposes 100% Chip Tariff, Exempts Apple and US Manufacturers

What’s Next for India-US Trade?

The tariffs aim to pressure India in BTA talks, but exemptions for pharmaceuticals, electronics, and semiconductors, alongside India’s domestic economy, limit damage. A successful BTA could lower tariffs to 15-20%, aligning India with Japan. However, India’s stance on agriculture, dairy, and Russian trade may prolong tensions.

Opportunities

  • New Markets: The EU, ASEAN, and Middle East offer growth potential.
  • Competitive Edge: India leads in 22 of 30 export sectors (NITI Aayog, July 2025).
  • Rupee Advantage: Depreciation boosts IT services and exempt sectors.

Challenges

  • Sectoral Losses: Non-exempt sectors face up to 40% export declines.
  • Geopolitical Risks: U.S. pressure on Russian trade could escalate.
  • Political Pressure: Opposition demands may lead to retaliatory tariffs.

Conclusion

The U.S.’s 25-50% tariffs on Indian imports, affecting $40-64 billion in exports, pose challenges for gems, textiles, and auto components, potentially cutting India’s FY26 GDP by 0.2-0.5%. Exemptions for pharmaceuticals and electronics, combined with India’s domestic-driven economy, soften the blow. Through BTA talks, market diversification, and strategic measures, India aims to navigate these tariffs while maintaining economic resilience. Stay tuned for updates on the August 25, 2025, talks, which could redefine India-US trade.

Mahendra Singh is a seasoned journalist and editor at TheInterviewTimes.com with over 28 years of experience. An alumnus of IIMC, he writes on international affairs, politics, education, environment, and key social issues.