Tariffs and Tensions: India–US Trade Talks Stalled as Relations Sour
India–US relations have entered a tense phase after Washington doubled tariffs on Indian exports to 50%, the steepest duties applied to any US trading partner. The move, tied to India’s record Russian oil imports, has derailed trade talks scheduled for late August. With USD 87bn in exports at risk and strategic cooperation under strain, both sides face a delicate balancing act between economic pragmatism and geopolitical rivalry.
Relations between New Delhi and Washington have entered one of their most testing phases in recent memory. The sixth round of trade negotiations, scheduled for August 25–28, has been stalled indefinitely, underscoring how the tariff standoff has spilled over into broader economic diplomacy. On August 6, 2025, President Donald Trump announced an additional 25% tariff on Indian exports, doubling the effective duty to 50% on most goods just days after an earlier 25% levy took effect. The move—explicitly linked to India’s continued purchase of Russian crude—makes Indian exports the most heavily penalised by the US, surpassing rates applied to China or the EU, and puts at risk roughly USD 87 billion worth of trade flows.
Economic Impact and Sectoral Fallout
The tariff shock threatens nearly 55% of India’s exports to the US, with sectors such as textiles, gems and jewellery, leather, chemicals, marine products, and auto components hardest hit. These industries, many of them labour-intensive, face immediate risks of margin compression and job losses. Strategic sectors like pharmaceuticals, semiconductors, energy resources, and critical minerals were spared, reflecting Washington’s dependence on Indian generics and supply-chain resilience.
A limited reprieve has been offered for in-transit goods shipped before August 7 and arriving before October 5, which will face only the initial 25% duty. Still, for most exporters, the new tariff environment has reset the calculus for doing business in the US.
Russian Oil: At the Core of the Dispute
The flashpoint remains India’s surging energy imports from Russia, which hit a record 2 million barrels per day in August, or 38% of India’s total crude basket. Washington argues these purchases indirectly fund Russia’s war in Ukraine, labelling them “opportunistic arbitrage.” New Delhi rejects this characterisation. Officials, including the Ambassador to Russia, have stressed that India will “continue buying from wherever it gets the best deal,” emphasising energy security and price stability as sovereign imperatives.
Indian authorities also note that China remains Russia’s largest buyer and point out that India has simultaneously expanded purchases of US energy. By their account, the US tariffs amount to “aggressive economic leverage on sovereign policy.”
Trade Talks Stalled
Both sides remain formally committed to finalising the first phase of a Bilateral Trade Agreement (BTA) by the fall, with the ambitious goal of boosting two-way trade from USD 191 billion today to USD 500 billion by 2030. Yet sharp disagreements over market access in agriculture and dairy—issues India sees as existential for small farmers—have become sticking points. The tariff escalation has made bridging these gaps even more difficult. With talks now stalled this timeline is unlikely to be met.
Strategic Consequences
While defence cooperation continues formally, friction could erode trust in broader strategic initiatives, including the Quad framework, where India and the US are key partners. Meanwhile, India has reaffirmed its partnership with Russia, seeking to expand exports to reduce its trade deficit with Moscow—another signal of New Delhi’s determination to maintain strategic autonomy. Meanwhile, prime minister Modi is set to attend the Shanghai Cooperation Organisation (SCO) Summit in Tianjin, China from August 31 to September 1, marking his first visit to China in seven years and a pivotal moment for both India's regional strategy and evolving relationship with China.
The India–US tariff crisis encapsulates the broader dilemma both sides face. For Washington, the tariffs are a tool to punish Russian alignment, but they risk alienating a vital Asian partner. For India, the policy priority remains clear: safeguard affordable energy, protect vulnerable farmers, and preserve sovereignty over trade and foreign policy.
As of late August 2025, the relationship stands at a crossroads. Whether the coming months bring a breakthrough in trade talks or a deeper rift will determine if the two democracies can still advance their shared strategic agenda while navigating profound economic disagreements.