Overview
Despite two decades of strengthening strategic ties, mounting trade threats and contentious geopolitical rhetoric under the Trump administration have put pressure on US-India relations. India, like many other nations, failed to secure a trade agreement with the US before the August 1 tariff deadline, leaving it vulnerable to steep economic consequences—25% on its exports effective August 7, alongside another 25% penalty tied to imports of Russian oil later this month. With both nations focused on their national and economic priorities, early signs suggest relations may continue to deteriorate during this administration.
Shocks to US-India trade are unlikely to generate global reverberations on the scale of US-China trade disruptions, primarily due to the latter’s sheer size and extensive integration into global value chains. However, regional headwinds are a more likely outcome, particularly as Washington has increasingly relied on India as a counterbalance to China’s growing dominance in the Asia Pacific region. Disruptions to this trading relationship could undermine US companies’ efforts to diversify supply chains away from China to emerging manufacturing hubs like India, a country eager to position itself as a major global manufacturing center. While neither the US nor India is heavily dependent on the other’s exports, sweeping tariffs on Indian goods could disrupt key sectors such as pharmaceuticals and textiles, increasing costs for US consumers and hindering India’s export-driven economic growth.
Tariffs and Targeted Criticism
On the eve of issuing an executive order to roll out global tariffs on imported goods, US President Donald Trump declared India would face a 25% tariff rate. While this rate had been anticipated—albeit slightly lower than the level imposed on “Liberation Day”—Trump’s announcement was accompanied by criticism of India’s trade policies and unspecified penalties tied to its import of Russian oil and defense equipment, later revealed to be an additional 25% blanket tariff to take effect in late August. In a social media post, Trump accused India of keeping “strenuous and obnoxious non-monetary trade barriers” that have resulted in the US doing “relatively little business” with India. Furthermore, Trump took aim at India's relationship with Russia, stating: “I don’t care what India does with Russia. They can take their dead economies down together, for all I care.”
While numerous countries have implemented concessions to align with US policies—albeit slowly and reluctantly—India has held firm in resisting such pressures. Over the weekend, two senior Indian officials reaffirmed their country’s commitment to purchasing oil from Russia. India’s Foreign Ministry spokesperson stated that India makes decisions on bilateral relationships independently and would not be influenced by a third country.
Since then, tensions between the US and India have escalated, with pointed public exchanges. Trump accused India of profiting off Russian oil sales, threatening further tariff increases on Indian exports. India retorted, calling its targeting by the US and EU “unfair,” especially given those nations’ substantial trade volumes with Russia. India highlighted figures showing that EU trade with Russia exceeds its own, and it questioned why other major Russian oil importers like China and Turkey have escaped similar penalties. India also noted the inconsistency in US policy, reminding the international community that Washington had previously encouraged India’s purchase of Russian oil to stabilize global oil prices—a move now seemingly at odds with current US rhetoric.
India’s Russian Oil Reliance and US Frustration
Since the onset of the Russo-Ukraine war, India has dramatically increased its purchase of Russian oil, accounting for over one-third of India’s oil imports. Prior to the war, India met most of its crude oil demand from the Middle East. Russian oil became attractive to India when Russia began offering discounted oil prices after it was hit with Western sanctions in 2022 for its invasion of Ukraine—specifically after the EU set a price cap of $60 per barrel on Russia, making it substantially cheaper than Brent Crude prices, which traded at around $80 per barrel at the time of the price cap. This price has allowed India to limit energy costs as demand in the country continues growing—electricity demand has risen at around 9% per year since FY21.
While New Delhi initially faced pressure to reduce its economic ties with Russia, international perspectives shifted. In November 2022, then US Treasury Secretary Janet Yellen said it was content with India purchasing Russian oil so long as it was bound by the price cap. The thought behind the price cap is that it restricts Russia’s most lucrative state revenues, hindering its ability to finance its war with Ukraine, while maintaining the supply of Russian oil to global markets that are vital to the global economy’s stability. Today, India stands as the largest importer of Russian crude oil, with 70% of Russian crude oil exported to India in 2024.
Raising the tariff rate to 50% as a penalty on India for purchasing Russian oil come as Trump has grown increasingly frustrated with Russian President Vladimir Putin for turning down Trump’s peacemaking efforts and instead escalating the war in Ukraine. Last month, Trump announced the US would continue supplying Ukraine military support and threatened secondary tariffs of 100% on countries that continue to import Russian oil if Russia does not reach a peace deal with Ukraine by August 8.
India’s Foreign Policy
India’s foreign policy has long been characterized as guided by the principle of non-alignment. This approach had allowed India during the Cold War to avoid aligning with either the Western bloc led by the US or the Eastern bloc led by the Soviet Union, enabling it to pursue national interests without becoming entangled in bloc rivalries. India’s longstanding policy of strategic autonomy has preserved its relations with both the US and Russia, even as Russia faces increasing isolation from the West.
India’s non-aligned posture has largely been tolerated by Washington. Since George W. Bush’s administration, India has been viewed as a crucial partner in counterbalancing China’s growing dominance in the Indo-Pacific and beyond. Bilateral ties have strengthened through civil nuclear agreements, deepened defense cooperation, and increased economic engagement. However, Trump’s second term marked a shift in US-India relations. Early in the term, Indian Prime Minister Narendra Modi’s visit to Washington signaled optimism for continued “great friendship” and economic collaboration. Yet ties soon worsened, driven by growing US-Pakistan engagement—with whom India has a complex and hostile relationship—and trade disputes.
Trump claimed credit for brokering a ceasefire between India and Pakistan after a terrorist attack in Indian-administered Kashmir—a claim Modi firmly rejected. Trump also offered to mediate the Kashmir dispute, an offer India dismissed, considering the issue an internal matter. Tensions escalated further when Trump hosted Pakistan’s army chief, Asim Munir, at the White House, despite some accusing Munir of being behind the attacks in Pahalgam. Amplifying India’s concerns of stronger US-Pakistan relations is that Pakistan secured a favorable trade deal with the US last week, lowering its tariff rates from 29% to 19%. Analysts suggest Trump’s interest in Pakistan’s oil reserves, mineral resources, and potential role in crypto regulation motivated the agreement.
Meanwhile, efforts to finalize a US-India trade deal have stalled over issues like US demands for open access to India’s agricultural and dairy markets, which India remains committed to protecting. Trump has also criticized BRICS, a group of emerging economies that India is a principal member of. He recently threatened a 10% tariff on BRICS nations, accusing them of pushing an “anti-American” agenda. Trump has been particularly wary of the group’s discussions on non-dollar-denominated transactions, at one point threatening 100% tariffs on BRICS exports to the US if they pursued a currency alternative to the US dollar.
Business Implications
Many speculate that Trump’s escalating pressure on India is a tactical move to gain short-term leverage to push forward stalled trade negotiations with the South Asian giant—or, at least, that is how Modi seems to be perceiving the growing tensions. India faces mounting pressure domestically, particularly from the opposition Congress party, whose leader Jairam Ramesh has stated that the country now faces three challenges: Pakistan, China, and now the US.
Despite the growing strain, India and the US have announced they remain engaged in trade negotiations. A US delegation is expected to visit New Delhi later this month, offering a glimmer of optimism for businesses that rely on bilateral trade. However, the timeline and likelihood of striking an agreement remain unclear.
Business confidence in India has taken a significant hit following Trump’s announcement of a 25% blanket tariff and penalities for Russian oil imports. The US stands as India’s largest trading partner, with bilateral goods trade reaching $129 billion in 2024. While India is an important trading partner for the US, it represents a comparatively smaller portion of overall US trade. Trump has signaled that the administration is willing to delay trade deals—even with major partners like Mexico, Canada, and China—unless they make concessions that Washington deems favorable, signaling a concerning precedent for India’s negotiations.
Uncertainty surrounding the future of US-India trade relations has reached an all-time high, with Indian financial markets reacting accordingly. The Indian rupee and stock indices opened lower following Trump’s tariff announcement, underscoring widespread anxiety among key industries. Many major Indian manufacturers have expressed concern about the blanket tariff, which could disrupt entire value chains, threaten the livelihoods of thousands of workers, and constrain production outputs. Meanwhile, large US firms that have recently moved manufacturing operations to India to sidestep China tariffs now face difficult decisions on how to continue their operations.
India’s industries, like most countries, are also vulnerable to product-specific tariffs authorized under Section 232. On Tuesday, Trump announced intentions to target Indian pharmaceuticals, threatening an initial “small tariff” that could rise to 150% within 18 months. India’s pharmaceutical exports are particularly at risk, with Indian pharmaceutical companies deriving more than 30% of their revenue from the US market. Unlike the EU, which secured capped tariffs on pharmaceuticals through its recent trade agreement with the US, India faces substantial risks without an equivalent deal in place.
While recent agreements like the UK-India Free Trade Agreement (FTA)—signed last month—offer hope, as India secured zero tariffs on 99% of its exports to the UK, they cannot fully offset potential damage to US-India trade relations. The UK-India FTA was the result of three years of negotiations, but India is now racing against time to avoid steep tariffs from its largest trading partner. Whether Modi will bow to mounting domestic and international pressure remains uncertain.
Key concessions India could offer include reducing Russian oil imports, which could alleviate US-imposed penalties. However, doing so presents logistical challenges: Indian refiners have already engaged in long-term contracts with Russian suppliers, and any significant diversification of oil sources to offset Russian imports would require substantial time and investment. Another potential concession could involve direct cash injections in sectors significant to Trump’s domestic agenda—a strategy deployed by nations such as Japan, the EU, and South Korea. However, this may pose a challenge to India as both the US and India are focused on attracting foreign investment into their respective manufacturing sectors. India is promoting itself as an alternative to China for supply chains, while Trump’s aggressive tariff strategy aims to bolster US-based manufacturing.
As both nations prioritize their national and economic interests, the future of US-India relations hangs precariously in the balance. The combination of hardline rhetoric, domestic political pressures, and global geopolitical realignments has created a climate of uncertainty that is likely to persist in the near term. Businesses on both sides are left grappling with unpredictable trade dynamics, altering investment strategies, and recalibrating supply chains to account for potential disruptions. Modi’s ability to navigate these mounting challenges will be crucial—not only for protecting India's economic interests but also for preserving years of progress in bilateral relations. The looming tariff deadline, coupled with Trump’s aggressive stance, may force India into making difficult decisions.
