REASSESSING THE “UNITED STATES–INDIA” TARIFF WAR
Introduction
Following India’s independence in 1947, the United States (U.S.) and India trade relations developed through alternating phases of partnership and dispute. Today, the United States stands as India’s largest trading partner, with bilateral trade reaching approximately USD 120 billion in 2024–25. Both nations, as two of the world’s largest democracies and increasingly interconnected economies, have consistently sought to capitalize on their respective advantages: India’s edge in agriculture, labour-intensive manufacturing, and services, and the United States’ leadership in advanced technology, capital-intensive sectors, and innovation. However, despite shared aspirations to expand bilateral trade, persistent tariff conflicts and protectionist policies have impeded sustained growth.
Trade frictions intensified in 2018 when the US imposed tariffs on steel and aluminum, prompting retaliatory duties by India and subsequent litigation before the World Trade Organization. These disputes resurfaced periodically and culminated in a major escalation in 2025. On August 27, 2025, President Donald Trump announced an additional 25%tariff on a wide range of Indian exports, effectively raising total import duties on Indian products to 50%. This sharp increase has reignited concerns regarding India’s export competitiveness, macroeconomic stability, financial market performance, and the risk of extensive labour displacements. Within this context, the present article undertakes a sector-by-sector analysis of the U.S. tariff measures on Indian goods and explores their broader economic and legal implications for both nations.
BACKGROUND ON TARIFF HISTORY
BACKGROUND ON TARIFF HISTORY
The current tariff escalation between the U.S. and India is part of a broader historical trajectory of trade frictions rather than an isolated development. The roots of the dispute may be traced to 2018, when the United States imposed additional duties on global imports of steel and aluminium, invoking national security concerns. As a significant exporter of these products, India was directly affected and sought redress through the World Trade Organization (WTO).
In 2019, the trade rift deepened further with the U.S. withdrawal of India’s beneficiary status under the Generalized System of Preferences (GSP). The GSP framework had enabled approximately USD 5.6 billion worth of Indian goods to enter the U.S. duty-free. Its termination exposed a wide range of Indian exports covering textiles, engineering goods, and agricultural commodities to higher tariffs, thereby eroding their price competitiveness in the U.S. market. In retaliation, India imposed counter-tariffs on select American agricultural and industrial products, mirroring a global rise in protectionist trade policies amid parallel U.S. disputes with China, the European Union, and other WTO members.
Concurrently, however, both governments have pursued negotiations aimed at mitigating these tensions and establishing a more durable framework for economic cooperation. In early 2025, India’s Commerce and Industry Minister, Piyush Goyal, engaged in multiple rounds of discussions with U.S. Commerce Secretary Howard Lutnick in Washington, D.C., including formal meetings in March, April, and May. Lutnick, speaking at the U.S.–India Strategic Forum on June 3, 2025, acknowledged India’s protectionist tariff structure but emphasized that early agreements tend to be more favourable and assured U.S. flexibility should India commit to tariff reductions. Goyal likewise highlighted the strategic importance of these talks in light of global economic uncertainty and shifting U.S. trade policies.
Looking ahead, both countries have articulated an ambitious vision of doubling bilateral trade to USD 500 billion by 2030. On February 17, 2025, Goyal reaffirmed India’s commitment to concluding a strong trade agreement within six to eight months, underscoring the urgency of securing favourable terms for India’s export-led growth. These parallel dynamics escalating tariff disputes on the one hand, and intensified negotiations toward a comprehensive trade deal on the other illustrate the complex and evolving character of U.S. and India trade relations.
AFFECTED SECTORS
The impact of these tariffs is differentiated sector-wise. The following table illustrates the major Indian sectors affected and the magnitude of tariff impositions:
Reassessing the United States–India Tariff War — Sector Impacts
| Sector | Tariff | Notes |
|---|---|---|
| Steel and Aluminium (Steel) | 25% | Disrupted jobs, putting severe pressure on small and medium exporters |
| Steel and Aluminium (Aluminium) | 10% | Disrupted jobs, putting severe pressure on small and medium exporters |
| Textiles and Apparel | 50% | Massive layoffs; loss of competitiveness |
| Leather and Footwear | 58.6% | Kolkata factories affected |
| Shrimp | Up to 60% | Andhra Pradesh farmers hit |
| Pharmaceuticals | Exempt | Mostly unaffected |
| Gems and Jewellery | 50% | Job losses, Surat & Mumbai were particularly affected |
| Chemicals | 54% | CHEMEXCIL and other industry bodies have approached the government for some intervention |
| Auto components | 25% | Lower but persistent tariffs |
| Cut and Polished Diamonds | 50% | Major revenue losses, layoffs |
These figures underscore the disproportionate effect on traditional export-driven industries, particularly textiles, agriculture, and gems and jewellery, which are highly sensitive to marginal changes in cost structure.
LEGAL IMPACTS UNDER INTERNATIONAL TRADE LAW
The unilateral imposition of tariff barriers by the United States raises significant concerns under the WTO framework. Two critical legal dimensions warrant close examination:
1.Most Favoured Nation (MFN)
The withdrawal of India from the GSP and the subsequent escalation of tariffs invite scrutiny regarding compatibility with the MFN principle enshrined in the General Agreement on Tariffs and Trade (GATT). Although the GSP constitutes a recognized exception to MFN, the procedural basis and substantive justification for India’s exclusion remain contested, thereby creating a potential ground for legal challenge.
2. Retaliatory Tariffs and the Principle of Proportionality
India’s retaliatory tariff measures against US imports raise parallel questions of compliance with WTO disciplines on countermeasures. The principle of proportionality an essential tenet in WTO dispute settlement necessitates a rigorous assessment of whether India’s response is commensurate with the injury suffered and consistent with its treaty obligations.
These unresolved legal frictions underscore the enduring importance of multilateral adjudicatory mechanisms, particularly the WTO’s dispute settlement system, in recalibrating imbalances and preserving the integrity of the international trading order.
STRATEGIC AND ECONOMIC CONSEQUENCES
The strategic and economic consequences of the tariffs imposed by the United States on Indian goods in 2025 have been substantial and multifaceted, impacting bilateral trade dynamics, India’s export economy, and geopolitical ties.
The US imposed a severe tax system on India’s exports, effectively imposing a total tariff rate of 50% on numerous Indian commodities by late August 2025. This contained an initial 25% duty, followed by an extra 25% penalty charge based on India’s ongoing import of Russian oil. These punitive duties affected around 55% of India’s exports to the U.S., totaling nearly $87 billion out of $434 billion in annual exports, causing a substantial slump in important industries, including textiles, gems and jewellery, leather, marine goods, chemicals, and auto components.
These tariffs have directly increased the cost of Indian goods in the U.S. market, severely undermining India’s global competitiveness. Industry estimates indicate a likely reduction in exports by $4 to 5 billion just in engineering goods. Overall, India’s GDP growth was projected to decline by 0.2 to 0.5 % points, dampening forecasts from around 6.5% to as low as 6%
Small and medium enterprises (MSMEs), particularly those heavily reliant on U.S. markets, were warned of significant challenges, including potential job losses and reduced production capacity. The Indian rupee weakened against major currencies amid these economic tensions, exacerbating concerns about inflation and increased costs for companies with foreign currency debt.
Strategically, these tariffs have disrupted India’s generally friendly bilateral relationship with the United States, introducing fresh mistrust and hampering broader collaboration on geopolitical matters. The tariffs came as part of a larger economic and diplomatic crisis in 2025, as tensions rose over India’s energy policies, notably its continued purchase of Russian oil despite Western pressure.
The issue prompted allegations of possible stops or delays in significant defence procurements from the U.S., although Indian officials denied any slowdown in defence cooperation. Such conflicts threaten weakening collaborative initiatives such as the Quad, which try to counterbalance Chinese regional dominance, as well as destabilize the broader strategic partnership that underpins India-U.S. relations.
The tariffs’ geopolitical impact spurred India to pivot towards greater economic self-reliance and deepen engagement with alternative global partners, including BRICS nations. The BRICS bloc condemned the U.S. tariff impositions as violations of international trade laws and intensified efforts toward de-dollarization and the establishment of multilateral financial mechanisms to reduce dependency on Western-dominated systems.
CONCLUSION
The existing tariff environment between the United States and India highlights the dangers of a bilateral trade partnership that lacks the institutional protections of a comprehensive free trade agreement. The use of tariff escalation as a policy tool reinforces protectionist tendencies, undermines WTO credibility, and has asymmetrical consequences: India faces reduced export competitiveness and sectoral dislocation, whereas the US risks supply chain disruption and weakened strategic trust with a key Asian partner.
The dispute exemplifies how trade measures function simultaneously as instruments of economic protection and tools of geopolitical leverage. Its resolution requires calibrated negotiations that move beyond immediate tariff grievances toward a stable and mutually beneficial economic framework consistent with multilateral norms.
Legal proceedings at the WTO underscore both the resilience and fragility of the rules-based order in reconciling divergent developmental needs. Yet the broader trajectory of U.S.–India cooperation in security, technology, and regional affairs suggests that trade frictions, while disruptive, are unlikely to derail long-term strategic convergence.
Ultimately, the tariff conflict highlights the dual character of trade disputes: constraining commerce in the short term, while serving as a catalyst for redefined engagement. For strategically aligned democracies, durable solutions lie not in zero-sum escalation but in compromise that reconciles domestic imperatives with global responsibilities.
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