U.S. Tariffs Strain India's Exports Amid Stalled Trade Talks

(HIMANSHU SHARMA/AFP via Getty Images)

A freight train carrying cargo containers rides along a railway track in Ajmer, India, on Aug. 26, 2025.

While India will keep negotiating a trade deal with Washington, it will remain protective of its agricultural sector and continue purchasing Russian oil, heightening the risk of prolonged exposure to high U.S. tariffs that will strain India's exports. On Aug. 27, the administration of U.S. President Donald Trump implemented an additional 25% tariff on Indian imports, raising the total rate to 50%. These tariffs are linked to India's continued purchases of Russian oil, which the White House alleges are funding Russia's war efforts in Ukraine. While other major importers of Russian oil, such as China and Turkey, were notably not targeted with U.S. tariffs, India's exports — particularly in labor-intensive sectors like garments, gems and jewelry — are significantly affected.

On Aug. 6, Trump signed an executive order on Aug. 6 imposing an additional 25% tariff on Indian goods in response to India's ongoing purchases of Russian oil.

U.S.-India trade talks have stalled due to disagreements over India's agricultural protections and energy ties with Russia. The tariff hike comes as efforts to finalize a U.S.-India trade agreement have slowed after five rounds of negotiations since April. U.S. officials have voiced frustration with New Delhi's reluctance to further open its markets, particularly in agriculture, where protections remain strong under Prime Minister Narendra Modi's push to shield India's vast farming community from international competition. Responding to the pressure, Modi reiterated on Aug. 7 that he would not compromise the interests of Indian farmers, even if it comes at a heavy cost. India's growing purchases of Russian oil have also been a key sticking point in U.S. trade talks. India imports more than 80% of its crude oil to meet the needs of its 1.4 billion people, and for decades has relied primarily on suppliers in the Middle East. But that pattern shifted after Russia's 2022 invasion of Ukraine and the wave of Western sanctions that followed, which forced Moscow to offer crude at steep discounts. Seizing the opportunity, India has significantly increased its purchases of Russian oil in recent years, which now make up about 35% of its total oil imports, up from just 1% before the war. Despite Western criticism, Indian officials maintain they will continue buying these imports, citing energy security and the country's heavy dependence on foreign supplies.

In 2024-25, India recorded a $46 billion trade surplus with the United States. In exchange for tariff relief, New Delhi initially offered to raise its purchases of U.S. energy goods from $15 billion to $25 billion and signaled interest in strengthening its defense ties with Washington, including by potentially acquiring American F-35 fighter jets. India also proposed scrapping its 6% digital services tax (which disproportionately affects large U.S. tech companies operating in India) and lowering tariffs on American bourbon, luxury cars and solar products, though it remains unclear whether these offers are still on the table.

India will rely on market diversification, consumption-boosting measures and government support to provide some immediate relief, but sustained U.S. tariffs on key labor-intensive exports will likely create longer-term economic challenges. The U.S. tariffs will primarily affect labor-intensive sectors like garments, gems and jewelry, footwear, sporting goods, furniture and chemicals, which are among India's top exports to the United States. Exporter associations estimate that nearly 55% of India's $87 billion in merchandise exports to the U.S. market could be impacted, creating openings for countries like Vietnam, Bangladesh and China (which face lower tariffs than India) to gain a competitive advantage. While Indian pharmaceuticals and electronic goods are exempt from the current U.S. tariffs, the potential for pharmaceutical tariffs, which Trump has publicly floated, also remains an ongoing risk for Indian drugmakers. Strong domestic demand, which accounts for about 60% of India's GDP, may help cushion the blow on the broader Indian economy. However, the United States is India's largest export destination, with shipments totaling $87.4 billion in 2024, accounting for roughly 2% of India's GDP. To support affected industries, the government has pledged measures such as subsidized bank loans, aid for export diversification and steps to stimulate consumption, including a sweeping tax reform. But while these initiatives may provide some relief, they will still leave vulnerable sectors exposed and increase the risk of opposition and unrest from affected industries and communities within India, increasing political pressure on Modi's government. Strategically, the U.S. tariffs will likely accelerate New Delhi's push to diversify markets and reach free trade agreements with other partners such as the European Union, New Zealand and Oman. However, such deals will likely take time to negotiate, meaning India's exporters face a difficult adjustment period in the near term.

The United States is the largest market for Indian gems and jewelry, with exports valued at $10 billion last year, representing nearly 30% of the sector's global sales. According to the Apparel Export Promotion Council, the United States also accounts for about 35% of India's total apparel exports.
On Aug. 15, Modi's administration announced its most significant tax reform since 2017. If approved in October, the reform, which aims to simplify and reduce taxes, could stimulate growth in sectors such as automobiles, home appliances and construction. While the reform will likely reduce government revenue, it could also boost consumer spending and expand participation in the formal economy, increasing overall economic activity.

While India will likely continue to seek a U.S. trade deal, it remains unlikely to concede on issues involving greater access to its agricultural sector, risking delays that could prolong Indian exporters' exposure to U.S. tariffs. Indian officials had initially targeted October to finalize a comprehensive U.S. trade deal that secures some level of tariff relief. However, India remains unlikely to agree to major concessions regarding its strategic agricultural sector, which generates roughly 18% of the country's GDP and employs nearly 45% of the Indian workforce — making it both an economically significant and politically sensitive industry. This will likely extend the timeline for an agreement, especially if the United States insists on substantial commitments regarding greater access to Indian agricultural goods — risking delays that prolong India's exposure to high tariffs. If Trump becomes frustrated with the slow progress in trade negotiations, he could also follow through on his threat to impose tariffs on Indian pharmaceuticals. This would exacerbate the economic impact on India because its pharmaceutical industry, which contributes about 1.72% to India's GDP, is heavily reliant on the U.S. market, with the United States purchasing 31% of India's total drug exports in 2023-24.

In a Truth Social post on Sept. 1, Trump claimed that India had agreed to reduce its tariffs to zero, though he did not specify when the offer was made. While New Delhi has yet to formally respond to Trump's remarks, Indian Trade Minister Piyush Goyal stated on Sept. 2 that India is actively pursuing a bilateral trade agreement with Washington, signaling that despite recent tensions, New Delhi remains committed to establishing a formal trade framework with the United States. India's foreign minister has similarly stressed that the country will remain engaged in U.S. trade talks, but also asserted that New Delhi is prepared to firmly defend its core priorities, particularly in agriculture and dairy.

While India may slightly reduce its purchases of Russian oil to ease U.S. pressure, a more drastic reduction remains unlikely unless the United States imposes more tariffs or sanctions. According to Reuters, India has saved at least $17 billion by increasing Russian oil imports since early 2022. However, U.S. tariffs of up to 50% could cut India's exports to the United States by more than 40%, or nearly $37 billion, in the 2025-26 fiscal year (April–March), creating an incentive for New Delhi to adjust its energy strategy. Indeed, on Aug. 26, Bloomberg reported that Indian refiners, including Reliance Industries and other state-run and private firms, plan to scale back Russian crude imports to roughly 1.4-1.6 million barrels per day from October, down from about 1.8 million barrels in the first half of the year. While Washington will likely view this modest reduction as largely symbolic and insufficient to warrant rolling back tariffs, it signals a measured effort by New Delhi to ease U.S. pressure without undermining its broader Russian oil strategy. A significant reduction in Russian oil purchases remains unlikely due to domestic pressure on Modi to resist U.S. demands, as well as India's desire to safeguard its energy security. However, if the United States sustains or expands tariffs and escalates further by directly targeting Indian oil and energy companies, India would likely reduce its Russian oil purchases at a faster pace, while also seeking to diversify its crude sources as part of a broader compromise with Washington.