Tariffs and Tensions: India Holds Its Ground Amid US Pressure

The India–US trade relationship has entered its most challenging phase in recent memory. The imposition of a sweeping 25% tariff on Indian exports to the US by President Donald Trump, effective August 1, 2025, marks a significant escalation in bilateral economic tensions. But beneath the trade spat lies a deeper geopolitical gambit—one that India is increasingly unwilling to play by Washington’s rules.

At the centre of the conflict are two flashpoints: India’s imports of discounted Russian crude and its refusal to grant the US broader access to its agriculture and dairy markets. Both issues have long rankled Washington, but Trump’s decision to wrap them into punitive trade measures reflects a new, more coercive posture. He declared the tariffs were a response not just to India’s “high tariffs and non-monetary trade barriers,” but also to its continued military and energy engagements with Russia, despite the war in Ukraine.

The Indian government’s response has been measured but firm. Prime Minister Narendra Modi, speaking at a public rally, defended India’s strategic autonomy and urged citizens to prioritise local manufacturing. He added that the government will  not compromise the interests of the farmers, workers, or national energy security. The Ministry of External Affairs dismissed the tariffs as “unilateral” and “disproportionate,” reiterating that India would continue to pursue discounted Russian crude as a commercial necessity.

From a macroeconomic standpoint, the impact of the tariffs will be manageable. India’s exports to the US total approximately USD 87bn annually—equivalent to just 2–3% of national GDP. The direct hit to growth is estimated at 0.2–0.3 percentage points, with FY26 GDP now expected closer to 6.2–6.3% rather than 6.5%. The greater concern is sectoral: labour-intensive industries like textiles, garments, jewellery, and auto parts are disproportionately exposed and already reporting order cancellations. Trump’s tariff structure has also put India at a competitive disadvantage. While Vietnamese exports face a 20% tariff and goods from Japan, South Korea, and the EU are being levied at 15%, Indian products must navigate the full 25% wall. With additional penalties of up to 100% threatened if Russian oil imports continue, Indian exporters are scrambling to reprice contracts and identify alternative markets.

Yet the Indian government remains unmoved. There has been no instruction—formal or informal—to state or private refiners to curtail Russian crude imports. Russian oil now makes up nearly 30-35% of India’s crude basket. The logic is simple: the discounts help shield domestic fuel prices and stabilise inflation. Officials argue that crude diversification is a sovereign right, not subject to geopolitical policing.

In Washington, the White House has confirmed that a US trade delegation will visit India later this month. Behind the scenes, both sides are still seeking a face-saving interim pact. But talks remain mired in disagreements. India refuses to open politically sensitive sectors such as agriculture and dairy to US exporters—moves that would carry high electoral costs and cut against its “Atmanirbhar Bharat” (self-reliant India) agenda. For its part, the US is trying to draw India closer to its Indo-Pacific economic framework, while indirectly nudging it away from China and Russia. That balancing act is growing more fragile.

Industry groups in India are lobbying for government support in the form of extended credit lines, temporary export incentives, and accelerated FTA talks with other markets. Some see opportunity in adversity: a chance to accelerate diversification toward the EU, UK, and Southeast Asia. Indeed, India has just concluded a favourable mini-deal with the UK, and trade talks with the EU are progressing.

Still, the broader message from Delhi is one of resistance. Commerce Minister Piyush Goyal has made clear that India will not “trade away core interests” for tariff relief. The larger strategic signal is unmistakable: India will engage with the West on trade and defence, but not at the expense of its longstanding partnerships with Russia or its own domestic priorities. Financial markets have priced in the short-term disruption. The rupee fell slightly against the dollar, and stocks dipped on tariff news—but there is no panic. Rating agencies expect India’s macro story to remain intact, buoyed by strong domestic demand, low inflation, and robust capital formation.

In essence, the India–US tariff episode is less about trade and more about the limits of coercive diplomacy. India has absorbed the shock with calm resolve, signalling that strategic autonomy is not up for negotiation—even in the face of superpower pressure. Whether Washington recalibrates its approach or doubles down will determine not just the trajectory of trade, but the future of Indo–US strategic alignment itself.