Trade Tariffs 2025 and the Shifting Dynamics of India-US Trade

In August 2025, the US notably intensified the India-US tariffs, raising import duties by as much as 50%. This move marked one of the most severe trade actions against India in recent history. The tariffs were introduced amid rising geopolitical and trade tensions, primarily driven by India’s continued purchase of Russian oil despite Western sanctions. These events have put the economic ties between the two democracies under considerable pressure. Read on to explore the causes, impacts, and future outlook of the India-US tariff dispute in detail.

Historical Background and Policy Drivers

On August 26, 2025, the US significantly increased its import tariffs on products from India, raising the duties from 25% to 50%. This was one of the most impactful trade actions between the two countries. This hike specifically targeted sectors that have been impacted by India’s continued purchase of Russian oil in the face of Western sanctions.

The extent of steps was without precedent, hitting Indian exports to the US worth over $48 billion in one go of the enforcement round. Among other sectors, the affected were textiles, jewellery, chemicals, and gems, and the new tariffs were applied simultaneously.

Before these hikes, US import duties for Indian goods were mostly 5-7%. At the beginning of 2025, the rates were doubled to 25% followed by another increase to 50% in August, thus going up the tariff ladder to the highest level in history for India-US trade relations.

Statements from the Trump administration pointed to the main reasons being reciprocal trade and correcting trade imbalances as the official logic. However, the tariff decisions were linked most explicitly with India’s tactics dealing with Russian oil imports and restrictions on US market access.

 

Sectors Most Impacted by the Tariffs

Several key Indian export sectors have faced significant disruption following the imposition of new trade tariffs 2025 in August:

• The Indian textiles industry, worth $14 billion annually, has been impacted, with 20–25% of exports to the US being subject to a 50% tariff that has led to order cancellations to the tune of several millions of dollars and a crushing of the export sector.
• While the gems and jewellery export industry, worth $10 billion per year, is expected to experience a drop of 75%, 170,000 jobs, largely located in centres such as Surat and Mumbai, which are areas for gold and diamond-studded items, will be affected the most.
• Exports of chemicals, about $7 billion, and marine products, about $5 billion, to the US have come to a halt, prompting Indian exporters to divert their products to other countries after the imposition of tariffs on 27 August 2025.
• The pharmaceuticals and electronics sectors, accounting for $30 billion worth of exports, are largely free from the new tariffs, with India supplying 40% of the US generic drug market.
• Besides the leather and engineering goods sectors, which had a decline in their business because of the tariff increase, they have also seen a reduction in their competitiveness in the US market.

Staying informed about  market trends and news is crucial for investors and traders looking to navigate these challenging times.

Economic Impact of tariffs on India

The 50% tariffs imposed by the US are creating major challenges in India’s export sector, where $48.2 billion worth of shipments are at risk, and the overall trade volume of the two countries is expected to reduce drastically. It is estimated that exports from India to the US will reduce from $86.5 billion in 2025 to around $50 billion in 2026.

The MSMEs sector, which accounts for nearly 45% of the total exports of the country, has suffered the most. According to the sector estimates, the loss of employment in the textile and gems sectors can reach up to 200,000 to 300,000, which will further lead to the suffocation of businesses that are highly dependent on the US market.

The economists foresee that a slowdown in exports, along with falling investments, will lead to the growth of India’s GDP by 0.2 – 0.8 percentage points for the years 2025–2026, which can be caused by the tariff increases.

In order to mitigate the impact, RBI Governor Sanjay Malhotra has pledged targeted support and additional liquidity for the impacted industries, while expressing confidence that disruptions will be contained and trade negotiations will progress.

 

Effect on India-US Trade Relations 

The recent India-US tariffs hike has deeply impacted bilateral trade relations, with the key effects outlined below.

• Ever since the US started to impose 50% tariffs on Indian goods in August 2025, diplomatic relations have deteriorated significantly, putting transnational bodies such as the Quad and defence partnerships at risk.
• According to the forecast, India’s exports to the US will plummet significantly, decreasing from $86.5 billion in 2025 to approximately $50 billion in 2026, which is indicative of the immediate reaction to the raised tariffs on trade between the two countries.
• Negotiations in trade have broken off; the sixth round of bilateral trade agreement talks, scheduled for 25 August 2025, was called off by the US delegation, and new dates have not been scheduled yet.
• Hence, Indian exporters are expanding the trade areas, signing new free trade agreements with the UK and EFTA, shifting production to countries like Vietnam and Bangladesh, and increasing intra-BRICS trade to lower the dependence on the US market.

Comparative US Tariff Rates and Global Positioning

Let’s take a look at how US tariff rates in 2025 differ across major trading partners.

Country	US Tariff Rate (2025)
India	50%
China	30%
EU	15%
Vietnam	20%
Japan	15%

 

In 2025, US import duty on India is the highest among its major trading partners, with most Indian products subjected to 50% duties. The heavy tariff load makes it difficult for India to compete in the US market, especially in areas where the country has made considerable exports, such as textiles, gems, chemicals, and leather. Consequently, India may lose the US market share to those nations which have lower import duties with the US, such as Vietnam and Bangladesh, and therefore, it may lose its position as the leading supplier of labour-intensive products. The elevated tariff rate challenges India’s trade competitiveness, necessitating strategic responses by exporters and policymakers to sustain growth in this crucial market.

Looking Forward: What’s Next for India-US Trade?

The future is still unclear, with these talks still in progress to bring down tariffs, the chance of lawsuits, and expectations for a wide-ranging trade deal by the end of 2025. It is recommended for Indian companies to spread their export markets, deepen their supply chains, and make use of the new free trade agreements with other countries. Although the high-tariff system is causing problems, India’s strong domestic consumption and economic reforms are giving it strength. As talks continue, both sides maintain open channels, highlighting the complex interplay between diplomacy and global market realities in 2025. Navigate trade uncertainties better with expert market analysis and timely insights. Explore premium tools and updates for informed decision-making.