Trump adds 25% more tariff pain, Modi says will best pressure

US President Donald Trump escalated trade tensions with India, announcing an additional 25% tariff on Indian goods early on August 27, raising the total duty to 50%. The move, drafted and released by the US Department of Homeland Security, targets India’s trade practices and continued purchase of Russian oil, threatening to disrupt a $131.8 billion bilateral trade and strategic relationship.

Prime Minister Narendra Modi had said a few hours earlier, “No matter how much pressure comes, we will keep increasing our strength to withstand it.” He was addressing a public gathering in Ahmedabad. 

Trump, in a statement on Truth Social, accused India of profiting from Russian oil purchases amid the Russia-Ukraine conflict, labelling it a “national security concern”. The tariffs, combined with unspecified penalties for India’s energy and defence ties with Russia, are expected to hit key Indian export sectors, including electronics, gems and jewellery, textiles, and shrimp, according to industry analysts.

Sectors facing the brunt

India’s electronics industry, particularly smartphones, is among the most brutally hit. This year, India surpassed China as the top smartphone supplier to the US, with exports valued at $24.1 billion in FY25, driven by Apple’s manufacturing shift to India. The 50% tariff could force price hikes or supply chain disruptions, potentially undermining India’s position in global tech manufacturing. Several analysts felt Apple’s strategy of sourcing iPhones from India may face setbacks. 

The gems and jewellery sector, contributing over $10 billion annually to US exports, faces severe margin compression. The Gem and Jewellery Export Promotion Council warned that the tariffs could inflate costs, delay shipments, and threaten jobs across the supply chain. “This is a deeply concerning development,” GJEPC Chairman Kirit Bhansali said to the media, noting the US accounts for nearly 30% of the sector’s global trade.

With $10.3 billion in US exports in 2024-25, textiles and apparel are also under pressure. The Confederation of Indian Textile Industry called the tariff a “huge setback,” predicting reduced competitiveness against rivals like Vietnam and Bangladesh, which face lower duties. Companies like Vardhman Textiles and Welspun Living have already reported declining US orders amid tariff uncertainties.

India’s shrimp exports, valued at $2.24 billion to the US, face a competitive disadvantage against Latin American suppliers. Combined with existing anti-dumping and countervailing duties, the effective tariff on Indian shrimp could reach 33.26%, according to industry estimates.

Economic fallout and response

Analysts estimate the tariffs could slash India’s US-bound exports by 40-50%, with a potential $33 billion loss and a 0.2% to 1% cut in GDP growth if sustained through FY26. Small and medium enterprises in export hubs like Maharashtra and Tamil Nadu are particularly vulnerable.

India’s government has signalled a preference for negotiation over retaliation. However, the US has put trade talks on hold. They were set to resume in late August in New Delhi, hoping to finalise an interim bilateral trade agreement by October-November. 

However, India’s high tariffs on agricultural goods, averaging 39%, and its resistance to opening dairy and genetically modified product markets remain sticking points.

The Reserve Bank of India has said it is ‘ready to support’ the sectors that will be worst hit by the sanctions. RBI Governor Sanjay Malhotra said "whatever" support is required for economic growth will be provided. 

The tariffs carry a geopolitical edge, with Trump citing India’s Russian oil imports—37% of its total oil imports—as a key grievance. India defends its energy purchases as critical for economic stability, given its 80% reliance on imported energy. The US move notably spares other Russian oil buyers like China and Turkey, raising questions about selective enforcement.

As India explores alternative markets in the EU and West Asia, analysts warn that replacing the US, its largest export partner, will be challenging in the near term. The outcome of upcoming trade talks will be critical in determining whether this tariff escalation becomes a short-term disruption or a long-term shift in US-India trade dynamics.