In a dramatic escalation of trade tensions, US President Donald Trump on Wednesday announced a 25 percent tariff on all goods imported from India starting August 1, alongside an unspecified penalty related to India’s continued defence and energy ties with Russia. The move comes after the two countries failed to reach an interim trade agreement despite months of negotiations.
The punitive tariff, revealed via a social media post by Trump on Wednesday evening is likely to hit Indian exports hard, especially labour-intensive sectors such as textiles, apparel, electronics, pharmaceuticals, and engineering goods. The US is India’s largest export destination, accounting for nearly one-fifth of India’s total outbound shipments, valued at $86.5 billion in FY25.
"While India is our friend, their tariffs are among the highest in the world, and they continue to purchase vast quantities of oil and arms from Russia — all things not good!" Trump posted on his platform, Truth Social. He added that India would face “a 25 percent tariff, plus a penalty” starting August 1.
The penalty, though unspecified, is seen as part of a broader campaign by the Trump administration to deter countries from engaging economically with Russia amid the ongoing war in Ukraine. Trump had earlier threatened tariffs of up to 100 percent — and possibly as high as 500 percent — on nations continuing to buy Russian energy or weapons.
Indian and US negotiators had been working on an interim trade agreement as a precursor to a larger bilateral trade deal (BTA) that Prime Minister Narendra Modi and President Trump aimed to conclude by October. However, persistent disagreements over agricultural market access, dairy standards, and non-tariff barriers prevented a breakthrough.
Despite the tariff announcement, Trump indicated at the White House later in the day that negotiations were still on. “We're talking to India now — we'll see what happens... You'll know by the end of this week,” he told reporters, suggesting a potential climbdown if India agreed to reduce its import barriers.
White House economic adviser Kevin Hassett said Trump was frustrated with the slow progress of trade talks. “He feels a 25 percent tariff will remedy the situation in a way that's good for the American people.”
However, the measure singles out India more harshly than other major trading partners. Recent Trump-imposed reciprocal tariffs were set at 20 percent for Vietnam, 19 percent for Indonesia, and 15 percent for Japan and the EU.
Indian industry and exporters expressed deep concern over the tariff shock. “This is a major setback, especially for sectors like textiles, footwear and furniture. The tariff will render Indian goods uncompetitive compared to exports from Vietnam and China,” said S.C. Ralhan, president of the Federation of Indian Export Organisations (FIEO).
Vinod Kumar, president of the India SME Forum, warned of an immediate hit to MSME exports across key sectors, with a knock-on effect on jobs, margins and cash flow.
Aditi Nayar, chief economist at ICRA, said the 25 percent tariff — plus the uncertainty of the penalty — could further weigh on India’s growth outlook. “We had forecast GDP growth of 6.2 percent in FY26 assuming modest tariffs. This move now presents a bigger headwind.”
Garima Kapoor of Elara Securities noted that while the tariffs are damaging, India may have avoided deeper long-term harm by not compromising on politically sensitive areas such as agriculture and dairy. “A rushed deal could have had serious socio-economic consequences,” she said.
Mithileshwar Thakur of the Apparel Export Promotion Council (AEPC) said expectations had centred around a more moderate reciprocal tariff of around 20 percent. “A 25 percent tariff, coupled with conditional penalties on defence and energy ties with Russia, has created major uncertainty for Indian exporters,” he said.
Trump’s move has also further strained bilateral ties beyond trade. He cited India’s participation in BRICS — which he labelled “hostile to the US” — and announced a new agreement with Pakistan to develop that country’s oil reserves, hinting that Islamabad could eventually supply crude to India.
Indian officials privately expressed concern that Trump’s actions were undoing years of bipartisan diplomatic efforts to strengthen US-India ties. “Trust has diminished. This is the lowest point in relations since the mid-1990s,” said Ashok Malik, partner at The Asia Group.
Despite this, Indian officials stressed that negotiations were not off the table and that New Delhi was closely evaluating the implications of the latest US measures.
India’s exports to the US (FY25): $86.5 billion
Trade surplus with US: $40.8 billion
Top exports: Apparel, pharmaceuticals, gems & jewellery, electronics
New tariff: 25 percent, starting August 1
Penalty: Details unclear, likely linked to Russian trade
