Frustrated Trump slaps 25% tariff on India rescinding his bonhomie with prime minister Modi , who is defying - The differences escalate as US wants to clinch $530 bn trade pact without India buying Russian oil - the differene between Russian Oil and Brent crude has slipped to a $2 margin
By Ashok Nilakantan Ayer - Specialist writer on Trade & Economics
August 1, 2025
The Tariff Announcement and Its Strategic Context
On July 30, 2025, U.S. President Donald Trump announced on Truth Social that India would face a 25% tariff on all exports)—effective August 1—along with unspecified penalties tied specifically to India’s continued purchases of Russian oil and military equipment. ( Photo: Courtesy: DNA India )
Trump called India a “friend,” but bluntly criticized it for having “among the highest tariffs in the world” and for being a major buyer of Russian energy and armaments, undermining U.S. efforts to isolate Moscow during the Ukraine war.
Treasury Secretary Scott Bessent echoed the administration’s frustration, calling India “not a great global actor” and accusing it of slow-walking trade talks while continuing to process and resell discounted Russian oil.
U.S. Secretary of State Marco Rubio described India’s energy purchases from Russia as “most certainly a point of irritation” in U.S.–India relations—even while acknowledging India as a strategic partner.
Why India Continues Buying Russian Oil
India became one of the world’s largest importers of Russian crude in 2025, importing around 2.08 million barrels per day, a 12% increase from May, as discounted prices amid sanctions made it economically compelling.
Despite mounting international pressure, Indian policymakers stressed that energy security is paramount. Foreign Secretary Vikram Misri stated, “It is the highest priority of the government of India to provide energy security… we will do what we need to do”.
However, by late July, state refiners began to pause imports of Russian crude, responding to narrowing discounts and U.S. pressure—though private firms like Reliance Industries continued limited purchases under existing contracts.
Economic Impact: Will India’s Growth Take a Hit?
Analyst Forecasts: Aarithmetic With Turbulence
ICRA’s Aditi Nayar already downgraded India’s GDP forecast from 6.5% to 6.2% following indications of higher-than-expected tariffs and penalties.
Nomura estimated that the combined tariff and penalty could shave off a further 0.2 percentage points from India’s growth—marking the move as “growth negative”.
Sectoral Exposure
Shipping, dairy, manufacturing, and pharma are among India’s major export sectors to the U.S. and potentially most exposed. Experts at EY India flagged that marine products, pharmaceuticals, textiles, leather, and automobiles could see significant disruption due to higher U.S. duties. Pharma is perhaps most at risk, given its reliance on U.S. demand and price-sensitive margin constraints.
Diversification Strategy
India’s relatively diversified trade relationships provide some buffer: Exports to Europe, Southeast Asia, Africa, and the Middle East have expanded steadily, reducing U.S. dependence. Domestic consumption also cushions the economy. As Nomura observed, “the implied shift in supply chains from China or Vietnam to India may now become less attractive” if India’s export costs rise too steeply.
Political Reactions Inside India
The tariff announcement prompted an immediate backlash from opposition leaders:
Congress MP Mallu Ravi said: “It is like he is threatening India... We should properly answer him”.
Rajiv Shukla added: “This is a really wrong step by the US... Indian businessmen will suffer”.
Congress MP Gurjeet Singh Aujla called it “a failure of Centre’s foreign policy” with immediate economic risks to businesses and exports.
Meanwhile, FIEO Director Generl Dr. Ajay Sahai described the 25% tariff as “disappointing,” expressing concern over the lack of clarity on the additional penalty and emphasizing the urgent need for negotiations.
In response, Commerce Minister Piyush Goyal rejected Trump's description of India as a “dead economy” and reaffirmed India’s resolve: “India refuses to play ‘dead economy’... we will protect our interests and sovereignty”. India also insisted that agriculture, dairy, and GM food remain off-limits in the negotiations—reflecting long-standing red lines for its trade diplomacy.
U.S. Legal Escalations and Broader Pressure Campaign
The tariff move aligns with pending U.S. legislation and foreign policy objectives:
U.S. Senator Lindsey Graham has proposed a bill to impose up to 500% tariffs on countries that continue to import Russian energy—a measure clearly referencing India and China
The Sanctioning Russia Act of 2025, introduced by Senators Lindsey Graham and Brian Fitzpatrick, empowers the President to enforce sweeping sanctions—including massive import duties—against countries trading with Russia if it does not cease its war.
These legislative moves signal increasing U.S. resolve to penalize not just Moscow but its trade enablers—a political strategy aimed at reinforcing the global isolation of Russia.
Diplomatic Tightrope: India’s Balancing Act
India’s longstanding defense and energy ties with Russia are historical and indispensable—but now present a geopolitical friction point with the U.S. Despite this, New Delhi reinforced its commitment to the India–Russia partnership through a statement reaffirming “a steady and time-tested partnership,” even as it pledged to evaluate strategic options in light of the U.S. tariffs.
At the same time, India continues trade talks with the U.S., with both sides expecting a delegation from Washington in India later in August to resume negotiations on a bilateral trade agreement—though divisions remain, especially over agriculture and high tariff sectors.
Market Signals and Immediate Repercussions
India reacted swiftly to the tariff news:
The rupee slumped, markets opened in the red, and sentiment soured as investors absorbed the diplomatic setback—and its potential hit to exports and growth
Equally, the broader emerging markets showed caution, particularly as U.S. tariffs added inflationary pressure on consumers and businesses globally
What It All Means For India Going Forward
GDP Impact and Risk Exposure
Estimated downgrade of 0.2–0.3 percentage points in GDP growth.
High exposure in pharmaceuticals, textiles, leather, and auto sectors.
Diversification cushions but only partially nullifies impact.
Energy Strategy Under Pressure
India’s pivot away from Russian oil is advancing, at least among state refiners—though cost and contract structures with private firms will dictate long-term shifts.
Any sustained U.S. pressure or legislative escalation could hasten India’s diversification to Middle Eastern and West African oil suppliers
Diplomatic Leverage and Trade Negotiations
India is likely to double down on trade autonomy, holding strong on sensitive sectors like agriculture, dairy, and GM food.
The upcoming U.S. delegation visit may be make-or-break: India will press for fair terms; U.S. officials may demand curbs on Russia ties.
Domestic Political Fallout
Opposition sectors may exploit the tariff fallout to paint the government’s foreign policy as transactional and costly.
BJP MPs and government spokespersons will need to navigate backlash and justify strategic decisions amid economic headwinds.
An Analyst Verdict
Trump's tariff move represents the first time a key U.S. trading partner has been penalized for third‑party energy and defense alignment. It's both a strategic warning and an economic lever—designed to pressure India into aligning more fully with U.S. geopolitical aims. Whether that backfires or succeeds will depend on India’s resilience—via export diversification, diplomatic balancing, and policy adaptability.
Commerce Minister Piyush Goyal put it, succintly: India is not about to be coerced into a position of diplomatic or economic weakness. India’s challenge—and opportunity—lies in demonstrating its ability to manage external pressure without compromising its strategic autonomy or undermining growth that lifts hundreds of millions.
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