Why additional Trump tariffs will be a big pain point for India

India Today

7 hours ago

The big escalation in tariffs announced by US president Donald Trump on imports from India has rattled the country's bourses and sent exporters in a huddle, with analysts estimating that the move will have a sizeable impact on India's growth in the short term.However, since the announcement is being seen by many as a new negotiating tactic by Washington, there is expectation that some common ground would be reached by the two countries before the new 'penalty' kicks in less than three weeks from now.advertisementAfter issuing a series of threats, Trump signed an executive order on August 7, imposing an additional 25 per cent 'ad valorem' duty on Indian imports to the US, taking the total tariffs levied by the US on Indian goods to 50 per cent. The additional duty is a 'penalty' for India's high dependence for crude oil on Russia, which is engaged in a war with Ukraine, whom the US supports through armaments, since February 2022.Earlier, Trump had announced a 25 per cent 'reciprocal tariff' on India, which kicks in on August 7, purportedly to narrow the big trade deficit the US has with India. The new additional levy of 25 per cent would come into effect on August 25, the order said.
In FY24, India exported $77.5 billion (Rs 6.79 lakh crore) worth of merchandise goods to the US and imported $42.2 billion (Rs 3.7 lakh crore) worth of goods from it, giving India a $35.3 billion (Rs 3.09 lakh crore) trade surplus.While the Indian industry was expecting that even the 25 per cent reciprocal tariff would be watered down by the US as part of a bilateral trade agreement both countries are currently working on, the additional tariff came as a big blow and has created a lot more uncertainty among exporters.A research note from Goldman Sachs said it expected the total effective tariff on Indian imports would be around 32 per cent after all exemptions. In response to the US announcement, India's ministry of external affairs has said that the Indian government 'will take all actions necessary to protect its national interests', signalling an unwillingness to bow down to the pressure from Trump.India has always maintained that its crude oil imports from Russia were in its 'national interest'. Russia, which had been in the eye of a geopolitical storm since 2022, survived the financial sanctions imposed by the US on it and has emerged as a major supplier of oil to two of the largest economies—China and India.Interestingly, China, which buys more oil from Russia than India and was earlier engaged in an intense tariff war with the US, has to pay a tariff lower than what was imposed on India—at 30 per cent.advertisementRussia had been able to supply crude to India at discounted rates at a time when crude prices were high. Therefore, it is no surprise that India, which imports 80 per cent of its crude oil requirements, bought as much as 35.8 per cent of its crude from Russia in FY25. The other major suppliers were Iraq (19.9 per cent), Saudi Arabia (13.6 per cent), the UAE (9 per cent) and the US (4.3 per cent).Trump's posturing had indeed been making India buy more oil from the US. Or so it seemed. In April and May 2025, the US accounted for 8 per cent (on average) of India's crude oil imports. In FY25, India's import bill for oil reached $143 billion (Rs 12.5 lakh crore), with crude oil imports of 244 million tonnes, at an average price of $586 (around Rs 51,500) per tonne.The Trump tariffs will have an impact on economic growth. Goldman Sachs had earlier estimated that the 25 per cent tariff would have a potential direct impact of around 0.3 per cent on India's real Gross Domestic Product (GDP) on an annualised basis. If the US goes ahead with the additional 25 per cent penalty, the overall impact on the GDP would be 0.6 per cent, it estimates. 'This estimate is based on India's goods exports exposure of roughly 4 per cent of GDP to US final demand and a goods export demand elasticity of nearly 0.5,' it said in a research note.advertisementAs expected, the additional tariffs have shaken the Indian stock markets. The BSE Sensex fell 527 points during intra-day trade on August 7 while the NSE Nifty fell by 170 points. 'Continued FIIs (foreign institutional investors) selling, coupled with escalating US-India trade tensions, is expected to weigh on market sentiment. The increased tariffs are likely to adversely impact major export-oriented sectors such as textiles, leather, gems and jewellery, auto components, pharmaceuticals, chemicals, and steel,' said a research note from Motilal Oswal Financial Services.Subscribe to India Today Magazine- EndsTune InMust Watch