Context:
On July 30, 2025, the U.S. President announced a 25% tariff on Indian imports effective August 1, 2025, citing high trade barriers and India’s continued energy and defence relations with Russia. The measure is linked to the proposed Russia Sanctions Act 2025.
What Is the Announcement?
- A 25% import tariff imposed on eligible goods imported from India.
- Includes additional penalty tariffs on account of India’s trade with Russia—particularly in oil and defence.
Objectives Behind the Tariff
- Correct Trade Imbalance
- Pressure India to lower tariff and non-tariff barriers in trade with the U.S.
- Penalize Russia-Aligned Trade
- Target India’s oil and defence purchases from Russia amid ongoing Ukraine-related sanctions.
- Expedite a Bilateral Trade Agreement
- Push India toward a “fair and reciprocal” trade deal with the U.S.
Key Features of the Announcement
- Trade War Language:
- U.S. President accused India of “obnoxious trade practices” and opaque regulatory policies.
- Linked to Russia Sanctions Act 2025:
- The proposed law allows up to 500% tariffs on countries continuing energy trade with Russia.
- Triggered by Diplomatic Failure:
- Follows fifth failed round of India–U.S. trade negotiations held in Washington.
- Tariff Revival:
- Reinstates and amplifies a previously suspended 26% tariff (April 2025) in a harsher form.
Strategic and Economic Significance for India
- Smartphones: Apple’s iPhone exports from India may see cost hikes or delays, threatening India’s gains under the PLI scheme and the “China Plus One” strategy.
- Pharmaceuticals: Tariffs may worsen US drug shortages and raise prices, as India supplies a significant share of generic drugs.
- Textiles and Apparel: Higher tariffs could shift orders to Vietnam or Bangladesh, risking job losses in India’s labour-intensive sector.
- Jewellery: Already under 27% duty, an additional 25% would squeeze margins drastically.
- Auto Parts: Shipments to the US will face full 25% duty, hitting the engineering goods sector.
- Shrimp & Seafood: Loss of price competitiveness against Latin America, affecting a sector already under scrutiny by the US for high Indian tariffs on agri goods.
