India may find itself at a disadvantage compared to regional competitors like Vietnam and China due to a 25% U.S. tariff coupled with extra penalties, according to Rahul Ahluwalia from the Foundation for Economic Development. He told the BBC that India is now in a weaker position in the race for foreign investment and industrial expansion.
Recent developments saw U.S. tariffs on Chinese imports reduced significantly—from 145% to 30%—after talks in Geneva and London. Washington has given both sides until August 12 to finalize a broader trade agreement. Meanwhile, in July, former President Donald Trump reached a separate arrangement with Vietnam, agreeing on a 20% tariff rate, considerably lower than the 46% initially proposed.
These shifts mean India can no longer rely on comparatively low tariffs to attract diverted supply chains, especially in sectors like textiles. That potential advantage is now lost.
“If the current tariff structure holds, it could directly impact major export sectors including pharmaceuticals, marine products, leather goods, automobiles, and textiles,” said Agneshwar Sen, a trade analyst at EY India.
Widespread Concern Over Tariffs
India’s business community has expressed alarm over the newly announced trade measures. Economists, exporters, and industry groups voiced concern that the tariffs would hurt Indian exports and complicate pricing negotiations.
Harsha Vardhan Agarwal, president of FICCI, called the move “unfortunate,” and said it would clearly affect exports. However, he remained hopeful the high tariffs were temporary and that a long-term deal would be reached soon.
Dr. Ajay Sahai, head of a major Indian export federation, said the new tariffs would likely lead to renegotiations between U.S. buyers and Indian sellers as exporters try to determine how much of the cost increase they can absorb.
While tariffs are taxes on imports, exporters feel the pressure indirectly as their goods become less competitive, potentially forcing price cuts that shrink profit margins.
Political Fallout and Strategic Concerns
India’s Commerce Ministry released a statement saying it was assessing the full implications of Trump’s decision. It reiterated India’s commitment to reaching a mutually beneficial agreement, but also emphasized the need to safeguard vulnerable sectors like agriculture, dairy, and small businesses—issues that have stalled progress in trade negotiations.
The opposition Congress party used the moment to criticize Prime Minister Narendra Modi, accusing him of failing diplomatically despite past outreach to Trump, including the widely publicized 2019 “Howdy Modi” event in the U.S. “This is a foreign policy disaster,” the party posted on X.
Russia Ties Add Complexity
Trump’s linkage of the tariffs to India’s trade relations with Russia has further complicated matters. Mark Linscott, a former U.S. trade representative and current advisor at the U.S.-India Strategic Partnership Forum, noted that bringing India’s Russia ties into trade negotiations adds an entirely new challenge. “It’s unclear how these issues could be integrated into a comprehensive deal,” he said.
India has continued to purchase Russian oil and maintained long-standing military ties, citing national interest and affordability concerns amid global energy market fluctuations. Although its dependence on Russian defense equipment is gradually declining, India has not joined Western sanctions on Moscow.
Despite these tensions, both sides still have strong incentives to resume dialogue. Bilateral trade currently stands at around $190 billion, with ambitions to grow this to $500 billion in the coming years.
Linscott also remarked that Trump’s style of dealmaking required direct high-level engagement, implying that a final agreement might have been more likely had Modi personally negotiated key elements like energy and defense purchases.
Trump’s Harsh Words and Future Talks
While Trump has previously described India as a “good friend,” he has also been a vocal critic of India’s high import duties. In a sharply worded post on Truth Social, he wrote: “I don’t care what India does with Russia. They can take their dead economies down together for all I care. We do very little business with India. Their tariffs are among the highest in the world.”
Still, efforts to hammer out a deal are expected to continue into August, with a U.S. delegation due in India next month. The goal is to lower the current tariffs and finalize a broader trade framework before the autumn deadline.
Even in a favorable outcome, tariffs could still settle around 15–20%, said analysts at Nomura—still higher than initially expected and disappointing given how advanced the negotiations had become.
Nomura also noted that the Indian economy, being less dependent on exports than some Asian counterparts, might absorb the shock better. However, the tariffs could still prompt the Reserve Bank of India to adopt a looser monetary stance, potentially accelerating rate cuts to support growth.
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