Explained: How Trump’s Tariff Hike Could Affect Indian Businesses

US Tariff On India: Tariffs are essentially customs duties levied on imports. These are paid by importers, who often pass on the cost to consumers

Higher tariffs will likely raise costs for Indian goods in the American market, affecting competitiveness

Source : ANI

US President Donald Trump on Wednesday announced a new 25 per cent additional import duty on Indian goods, along with an unspecified penalty, which could significantly impact India-US trade relations. The additional duties will take effect starting August 1.

The penalty, still undefined in its structure and extent, has been imposed in response to India’s continued purchase of crude oil and military equipment from Russia. An executive order from the White House is expected to provide more clarity on how the penalty will be applied.

The announcement has caught many off guard, especially as both countries are currently engaged in trade negotiations. This development could further complicate efforts to reach a mutually acceptable agreement.

Understanding Tariffs And The Current Changes

Tariffs are essentially customs duties levied on imports. These are paid by importers, who often pass on the cost to consumers. In addition to the new 25 per cent levy, there’s already a 10 per cent general duty in place on all goods, introduced in April. Indian exporters also face existing duties of 50 per cent on steel and aluminium, and 25 per cent on auto and auto parts.

For example, Indian textiles currently subject to a 69 per cent duty could face up to 94 per cent total tariffs after the new additions and penalty components are applied.

The US administration argues that it faces a persistent trade imbalance with India. Washington accuses New Delhi of maintaining high tariff walls on American goods, restricting access to the Indian market, and disadvantaging US exports.

Trade Snapshot: India–US Economic Ties

Between 2021 and 2025, the United States remained India’s largest trading partner in goods. In the fiscal year 2024–25 alone, bilateral trade reached $186 billion, including $86.5 billion in exports from India and $45.3 billion in imports.

India recorded a trade surplus of $41 billion with the US in 2024–25, up from $35.32 billion the previous year. In the services sector, India exported approximately $28.7 billion and imported $25.5 billion, contributing a surplus of $3.2 billion. Combined, India’s total trade surplus with the US stood at around $44.4 billion.

However, US-based think tank GTRI suggests the overall balance may tilt in America's favor when revenues from education, technology services, royalties, financial services, and defence exports are included—estimating a net US surplus of $35–40 billion.

Top Exports And Imports Between The Nations

India’s key exports to the US in 2024 included drug formulations ($8.1 billion), telecom equipment ($6.5 billion), gems and jewellery ($5.3 billion), petroleum products ($4.1 billion), auto components ($2.8 billion), and ready-made garments ($2.8 billion).

On the import side, India sourced crude oil ($4.5 billion), petroleum products ($3.6 billion), coal and coke ($3.4 billion), diamonds ($2.6 billion), and aerospace equipment ($1.3 billion) from the US.

Impact On Indian Exports

Higher tariffs will likely raise costs for Indian goods in the American market, affecting competitiveness. Sectors reliant on exports, particularly labour-intensive ones like garments, leather goods, footwear, handicrafts, and jewellery, may bear the brunt.

From August 1, telecom goods will attract a 25 per cent tariff; gems and jewellery could face duties between 30 and 38.5 per cent (up from the current 5–13.5 per cent); food and agricultural exports will see rates rise to nearly 30 per cent, while apparel will incur a 12 per cent base duty plus the new 25 per cent hike. Additional penalties could further raise costs.

Do Trump’s Claims Hold Water?

While the US has criticised India’s tariff structure, it’s worth noting that America also imposes steep duties on several items. US import duties include 188 per cent on dairy, 132 per cent on fruits and vegetables, 193 per cent on cereals and food preparations, and 150 per cent on beverages and tobacco.

India’s average tariff rate stands at around 17 per cent—higher than the US’s 3.3 per cent, but comparable to other economies such as South Korea (13.4 per cent) and China (7.5 per cent).