From vulnerability to strength: India's post-tariff economic blueprint

INTRODUCTION Escalating trade tensions between India and the United States, driven by a sharp rise in U.S. tariffs, are posing significant challenges to the Indian economy.

- Dr. Rajiv Khosla

The U.S. has imposed a steep 50% tariff on a range of Indian goods— one of the highest on any trading partner. This includes an existing 25% “reciprocal” tariff and an additional 25% penalty linked to India’s continued purchase of Russian crude oil, which Washington argues indirectly supports Russia’s actions in Ukraine.

Unlike many U.S. partners in Europe and Asia who have mitigated such punitive measures through tailored trade deals, India lacks a comprehensive agreement with Washington. The EU, for example, secured tariff reductions by granting U.S. industrial goods duty-free access and prioritizing U.S. agricultural imports. Japan and Korea negotiated favorable terms through strategic investments in U.S. industries like semiconductors and clean energy. Several nations have also committed to large purchases of U.S. defense and energy products to offset deficits. India, by contrast, remains one of the highest tariff-paying economies to the U.S., alongside Brazil and South Africa, making it especially vulnerable.

The U.S.’s harsher stance toward India, compared to its more cautious approach toward China, underscores geo- political considerations. While China continues to buy Russian oil at scale, its dominance over rare earth minerals—critical to U.S. technology and defense— dissuades Washington from escalating a full-scale trade war with Beijing. Targeting India allows the U.S. to exert pressure without jeopardizing critical supply chains. However, the consequences for India’s economy, especially its export sectors, are likely to be significant.

The Looming impact on India’s Economy

The 50% U.S. tariffs are expected to have widespread economic repercussions: