Donald Trump’s 50 per cent tariff on India threatens to gut an export sector worth tens of billions of dollars and destabilise one of the world’s largest economies.
The steep levy, which kicked in on Wednesday, combines a 25 per cent import tariff and an equal “penalty” for New Delhi’s purchase of Russian oil and weapons.
The measure represents one of Washington’s harshest trade actions ever against a partner, and one it calls a strategic ally.
The tariff is set to hit a wide range of exports such as textiles, gems and jewellery, shrimp, carpets, leather, furniture, sporting goods, and chemicals. These are low-margin, labour-heavy sectors and exporters warn that hundreds of thousands of jobs are at stake given that the US is India’s largest export market.
The research group Global Trade Research Initiative estimates that nearly two-thirds of Indian exports to the US – valued at about $60bn – now attract the highest tariff rate of 50 per cent, according to NDTV. Overall, merchandise exports to the US could fall more than 40 per cent this year, to about $50bn from $87bn in 2024.
Nearly 30 per cent of Indian exports remain duty-free and another four per cent now attract a 25 per cent tariff.
The root of the dispute
After Russia invaded Ukraine in 2022, India sharply increased its purchase of discounted Russian crude. Three years on, it takes almost 40 per cent of its oil from Russia.
Much of this oil is imported by Reliance, a private conglomerate led by billionaire Mukesh Ambani which operates the world’s largest refining complex in Gujarat state.
Washington sees this arrangement as undercutting its sanctions against Moscow. US treasury secretary Scott Bessent even accused India of “profiteering” from Russia’s war against Ukraine.
New Delhi maintains its Russian oil imports are a matter of survival for a growing, energy-hungry nation.
Indian officials also warn that ending Russian oil purchases – roughly two million barrels a day – will push global prices above $200 per barrel, shattering supply chains and triggering domestic fuel shocks.
India’s foreign ministry earlier accused the US of applying “double standards” in penalising New Delhi for purchasing Russian crude oil while sparing China, a bigger importer, and itself continuing to take Russian palladium and uranium.
Russia has long been a major economic and defence partner for India and the two countries have pledged to increase annual trade by 50 per cent to $100bn over the next five years.
“India needs Russia for defence equipment for several more years, cheap oil when available, geopolitical support in the continental space and political backing on sensitive matters,” Happymon Jacob, founder of the think tank Council for Strategic and Defence Research, said. “That makes Russia an invaluable partner for India.”
He emphasised, however, that “despite the difficulties between Delhi and Washington under Trump”, the US remained India’s most important strategic partner. “India simply does not have the luxury of choosing one over the other, at least not yet.”
How the tariff impacts the Indian market
SC Ralhan, president of the Federation of Indian Export Organisations, said textile hubs such as Tirupur, Noida and Surat had already halted production.
“With approximately 55 per cent of India’s US-bound shipments now exposed to pricing disadvantages of 30-35 per cent, Indian goods have been rendered uncompetitive compared to competitors from China, Vietnam, Cambodia, the Philippines, and other Southeast and South Asian countries,” he told the Indian Express.
He called for government relief such as loan moratoriums and cheaper credit.
The Gem and Jewellery Export Promotion Council said the US was the industry’s single largest export destination, buying more than $10bn worth of gems annually.
It warned that the new tariff would “disrupt critical supply chains, stall exports and threaten thousands of jobs”.
Impact beyond the factory floor
Analysts warn that the impact will be felt far beyond the factory floor.
“If these higher rates were to sustain through the year, without any breakthrough of a deal, then we would see major disruption in the labour intensive sectors like gems and jewellery, textiles etc,” Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said.
“The high micro, small and medium enterprises sector share in exports is likely to weigh on employment prospects and hence cloud the consumption demand outlook.”
She estimates an annualised hit of $25bn to $50bn, cutting India’s GDP growth forecast of 6.2 per cent by up to 0.3 percentage points.
Aastha Gudwani, India chief economist at Barclays, said nearly 70 per cent of India’s exports to America, valued at $55bn, were now under serious threat, “accelerating downside risks to growth”.
“From a ‘good friend’ to a ‘bad trading partner’, it has come a long way,” she said, referring to the bilateral relationship.
Madhavi Arora, chief economist at Emkay Global, noted the tariff would likely complicate global monetary policy as well. “As US Fed’s policy choices will become complicated with too many moving parts, emerging market central banks, including the RBI, may eventually follow suit.”
Is the steep tariff meant to secure a favourable trade deal?
Mr Trump has made tariffs the cornerstone of his economic strategy, using them as both a shield for US industries and a bargaining tool in global negotiations.
Since January, the US president has announced sweeping duties, including 50 per cent on steel, aluminium and copper, and 25 per cent on imported cars and vehicle parts. He has also warned of a 200 per cent levy on pharmaceuticals and has scrapped the exemption on low-value imports used to buy cheap goods from Chinese platforms like Shein and Temu.
Mr Trump insists the measures will revive domestic manufacturing and curb America’s trade deficit, which he claims is the result of being “pillaged” by foreign competitors.
But critics say the volatile policy is unsettling the world economy and raising costs for US consumers.
Prashant Khemka, founder of White Oak Capital, told Moneycontrol that tariffs were a “negotiating tactic”, serving “a dual purpose in the Trump world – Russia political battle as well as India trade talks”. He expects duties to fall below 25 per cent, calling that outcome “decent enough” for India.
Consequences may linger even if tariff is reduced
The trade standoff comes as India and the US seek to strengthen defence ties and their role in the Quad, a security alliance aimed at countering China that also includes Japan and Australia. In the face of this bitter trade row, though, the partnership looks more fragile than at any point in decades.
Talks to avert a steep tariff rate collapsed after five rounds of negotiations. Indian officials had hoped duties might be capped at 15 per cent, the level Washington granted allies like Japan and South Korea, but misjudgements and political mistrust scuppered the process. Both sides now face the worst rupture in trade ties since American sanctions following India’s nuclear tests in 1998.
A sustained high tariff rate could dent India’s growing appeal as an alternative manufacturing hub to China for goods such as smartphones and electronics.
“Up to two million jobs are at risk in the near term,” Sujan Hajra, chief economist at the Anand Rathi Group, said.
“Yet the bigger picture is less gloomy: India’s export base is diversified, its corporate earnings and inflation outlook remain intact, and domestic demand is robust enough to cushion the blow.”
The consequences may linger even if the tariff rate is reduced.
Ajay Srivastava, founder of the Global Trade Research Initiative and former Indian trade official, said competitors like Vietnam, Mexico, Turkey, and even Pakistan and Kenya stood to benefit. “They could potentially lock India out of key markets even after tariffs are rolled back.”
