Trump’s Tariffs on India- Trade War, Oil Diplomacy, or Political Theater?

Tariffs have recently been the centrepiece of international economics with the U.S.A.'s President Donald Trump's retaliatory tariffs. But have you ever considered how tariffs benefit the home country and how they affect global trade? That's exactly what we are going to discuss in this article, with an emphasis on the recent tariffs proposed by the U.S.A. on India. 

What are Tariffs and its benefits for the home country?

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A tariff is a tax or duty imposed on imported goods by a government. For example, if a 50% tariff is placed on an Indian product worth $100, it would cost $150 in the United States. Tariffs increase prices of foreign goods, reduce competitiveness in the importing market, lower export earnings for the exporting country, hurt employment in export-oriented industries, and encourage domestic manufacturing by making imports costlier. It helps in maintaining the trade balance and keeping the current account balance in check. It helps in achieving self-reliance. 

U.S.A’s proposed tariffs on India

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On August 6, 2025, U.S. President Donald Trump shocked the global trade community by doubling tariffs on Indian imports — from 25% to 50% — one of the highest ever imposed on a U.S. trade partner. His stated reason was India’s continued import of discounted Russian oil, which Washington claims undermines sanctions on Moscow amidst the ongoing Ukraine war. In response, India called the move “unfair, unjustified, and unreasonable.”

Share of each country as percentage in Indian exports in financial year 2024

How does this affect India?

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The U.S. is India’s largest export market, and this sudden tariff spike puts massive pressure on sectors like textiles and garments, gems and jewellery, auto parts, and seafood. Over 55% of Indian exports to the U.S. are affected. According to the Global Trade Research Initiative, this could slash U.S.-bound Indian exports by 40–50%, triggering job losses, factory slowdowns, and a decline in GDP growth. Even though Electronics and Pharmaceuticals are exempt (for now), investor confidence in India as a reliable trade partner could still take a hit.

India US Exports and Imports Data from 2017-2022

[This is the share of Indian Exports to the USA by product group in FY 2024-25.]

Russian Oil Exports to India

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India imports over 85% of its crude oil, and Russian oil has become an attractive option because it is often 20–30% cheaper than Brent crude, available in large quantities, and critical for India’s energy security. Since Western nations shifted their oil supply chains after the Ukraine invasion, India stepped in to fill the gap, securing affordable energy for its 1.4 billion people. It is not just India — China, Turkey, Brazil, and others also continue to buy Russian oil, yet only India is facing a 50% U.S. tariff. Many in India see this as deeply unfair. The U.S. itself traded $3.5 billion with Russia last year, yet it singles out India for punishment. Other major Russian oil buyers are not being sanctioned at the same level, and in the early stages of the war, India was even encouraged to purchase Russian oil. India has remained non-aligned, prioritizing national interest over bloc politics, and penalizing it now appears to be an act of selective outrage. As the Indian Foreign Ministry put it, “It is extremely unfortunate that the U.S. should impose tariffs on India for actions several other countries are also taking.”

Who's been buying Russian oil since invasion?

How different exporting sectors in India will be affected?

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The tariff shock will hit several Indian sectors hard. Marine exports, particularly shrimp, will be among the worst affected, as the U.S. accounts for over 32% of India’s shrimp exports. A sudden 50% tariff will wipe out cost advantages, potentially shifting U.S. buyers to competitors like Vietnam or Ecuador. Petroleum products, India’s top export to the U.S., may face reduced margins and declining volumes, even though the tariff hike here is smaller (6.9% unchanged) — the broader trade environment could still make them less competitive. Organic chemicals, a $2.7 billion export to the U.S., will struggle as the jump from zero to 50% duty erodes profitability, pushing American importers to source from tariff-free countries. Textiles and apparel are also expected to take a heavy blow, as higher prices could slash demand in the price-sensitive U.S. retail market. Engineering goods and auto components, which rely on long-term contracts with American firms, may face cancellations or renegotiations, disrupting supply chains. Even niche exports like gemstones, pharmaceuticals (formulations), and leather goods risk losing U.S. market share, as competitors from nations with lower tariffs under trade agreements will fill the gap.

[U.S. share in key Indian exports (Shrimp, Petroleum, Organic Chemicals, Textiles, Engineering goods)]

Are the tariffs just about buying Russian oil?

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This move is not solely about oil. It is also about politics, power, and pressure. Trump’s approach reflects a preference for onshoring over friend-shoring — bringing jobs back to America even at the expense of allies. In an election year, a hardline trade stance plays well with voters, and targeting foreign nations can project strength. It also serves as sanctions signaling, using India as an example to warn other Russian oil buyers. Meanwhile, U.S.–India trade talks have broken down over disagreements such as India’s refusal to lower tariffs on U.S. farm goods, the rejection of Trump’s claim of mediating India–Pakistan peace, and diverging geopolitical visions. In frustration, Trump even referred to India as a “dead economy”, further straining ties.

US Most Favoured Nation Tariff rates v.s. newly announced tariffs

What Should India do now?

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Trade experts say India should respond with strategic patience. Retaliation could escalate tensions, so the focus should be on accelerating free trade agreements with the EU, UK, and ASEAN, diversifying exports to reduce U.S. dependence, and using forums like the WTO, G20, and Quad to rally diplomatic support. Above all, India must continue to assert its autonomy without yielding to external coercion — keeping its long-term trade and energy security goals intact.

Conclusion

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In conclusion, Trump’s 50% tariff on Indian imports is more than an economic measure — it is a calculated blend of trade war tactics, oil diplomacy, and political theatre. While the immediate impact will be felt in export-driven industries and thousands of Indian livelihoods, the larger test lies in whether India can turn this crisis into an opportunity to strengthen trade diversification, deepen strategic partnerships, and reinforce its position as an independent, non-aligned power in the global order. The coming months will reveal if this episode becomes a painful setback or a catalyst for a more resilient and self-reliant Indian economy.