As Aug 1 deadline looms, Trump says 25% tariff on India, partly as 'punishment'

Late on the night of July 29th, two days before the Trump tariff deadline of August 1 runs out, the US president said that India will likely face a levy of 20-25% on its exports into his country. He said that India was a ‘great friend’ as was Prime Minister Modi and that India-US trade talks for a deal were “working out very well”. He followed that up by saying that India charged ‘higher tariffs that other countries’ and that this will have to end now that “I am in charge”.

Ongoing for several months, and New Delhi had hoped to meet the August 1 deadline, but this now seems unlikely

Trade talks between the two countries have been ongoing for several months, and New Delhi had hoped to meet the August 1 deadline, but that now seems unlikely. To be sure, Trump has not made any formal communication about his tariff rate to India, unlike the letters he has sent to other countries. But talks have hit several barriers, which for the moment are being negotiated, with a US team scheduled to visit later next month. 

Impact of 25% tariff

But what will a 25% tariff look like, and how will it impact India?

The US is India’s largest trading partner, with merchandise exports totalling approximately $77 billion in FY 2023-24. The balance of trade is heavily tilted towards India, meaning it exports significantly more to the US than it imports from there. News of Trump’s 25% tariff has already sent the rupee to its lowest in months. These sectors will be the hardest hit if the US holds India to that number.

Automobiles and auto parts

The US accounts for 27% of India’s auto component exports ($21 billion). A 25% tariff on automobiles and parts, effective from April 2025, could reduce profitability for Indian exporters like Tata Motors and Sona Comstar. This will not only potentially hit the shares of these companies but also end up costing the end consumer more.

Textiles and garments

Garments face tariffs up to 28.2%, which could make Indian exports less competitive in the US market. This is less than what Bangladesh has got slapped with – 35% -- which cheered the Indian market. But it will make competing with countries like Vietnam, which have signed a deal for 20% with the US, more difficult.

Gems and jewellery

The US is India’s largest market for jewellery exports (30% of total shipments). While cut and polished diamonds currently enjoy duty-free access, any change could disrupt this sector.

Agriculture and food products

Fish, meat, and seafood exports ($2.58 billion in 2024) could face a 27.83% tariff, while processed food, sugar, and cocoa ($1.03 billion) may see a 24.99% tariff, increasing costs for US consumers and potentially reducing demand. India has resisted reciprocity in agricultural produce from the US, which has been demanding lower tariffs from Delhi to access the Indian markets. This sticking point is one of the main reasons for the delay in a trade agreement.

Pharmaceuticals and IT

Pharmaceuticals are currently exempt from tariffs, mitigating the impact in this sector. But Trump has been talking consistently about taxing pharma imports as well, which could create serious challenges to the industry, which is already dealing with restricted raw material supplies from China. The IT services sector, too, could face challenges if non-tariff barriers or related trade restrictions emerge. Indian IT is already facing headwinds with reduced global demand and technology disruptions. 

The US trade deficit with India was $46 billion in 2024. The tariffs aim to address this by making Indian goods more expensive in the US, potentially reducing the deficit. India may consider retaliatory measures, such as slashing tariffs on $23 billion worth of US imports, which is what the trade talks are negotiating.

Not all bad news

The relative good news for India, though, is that compared to, say, China at more than 50%, it still has a competitive advantage in the US market. In any case, India’s economy is primarily driven by domestic demand, which could cushion the impact of reduced US exports. With strong fundamentals, analysts say that the Indian economy will not be heavily impacted in the short term by a 25% tariff. Also, with a favourable trade balance, Indian markets are less dependent on goods coming in from the US compared to the value from China. 

Overall, given the depth of Indo-US strategic ties, analysts point out that the impact will be short-term rather than any long-term pain. 

Trump’s tariff policy and India’s Russian energy purchases

Trump’s recent threat to impose a 25% tariff on Indian exports to the US, announced around July 29-30, 2025, explicitly links India’s continued purchase of Russian crude oil to trade penalties. This follows his broader policy of threatening secondary tariffs (ranging from 25% to 100%, with proposed legislation up to 500%) on countries buying Russian energy, aiming to pressure Russia into a Ukraine ceasefire by choking its oil revenue, which was $192 billion in 2024.

India, which imports 1.6-2.2 million barrels per day (bpd) of Russian oil (35-44% of its crude demand), is a prime target, as this trade helps Russia evade Western sanctions following the 2022 Ukraine invasion. Trump’s rhetoric frames India and China (buying 70% of Russia’s oil exports) as enablers of Putin’s “war machine.”

EU’s role in Russian trade and Trump’s stance

The EU’s continued imports of Russian energy and goods complicate Trump’s narrative. Despite reducing dependency since 2022, the EU imported €50.69 billion in goods from Russia in 2023, including 6% of Russia’s crude oil exports (down from 27% pre-invasion) and significant natural gas via pipelines like Nord Stream and TurkStream. Hungary and Slovakia, for instance, rely on Russian oil through the Druzhba pipeline.

At the same time, the EU buys processed products (e.g., diesel, jet fuel) from Indian refineries like Nayara Energy (partly owned by Russia’s Rosneft). EU nations also import Russian LNG, coal, pharmaceuticals, and edible products, indirectly supporting Russia’s economy.

Trump’s tariff threats have not explicitly targeted the EU with the same intensity as India or China. While he supports the Russian Sanctions Act (S. 1241), proposing 500% tariffs on countries trading Russian energy, his public statements focus on non-allied nations like India, China, and Brazil.

The EU’s status as a US ally, coupled with its partial compliance with sanctions (e.g., banning Russian seaborne oil), may explain this leniency. However, NATO’s Secretary-General Mark Rutte has urged EU nations to pressure Russia, suggesting some alignment with Trump’s goals, though without explicit tariff threats against Europe.

Comparative analysis: India vs EU

India’s Russian imports, particularly crude oil, have surged (96% CAGR over five years), driven by discounts of $10-15 per barrel below Brent prices, reaching 2-2.2 million bpd in June 2025. This shift followed Western sanctions, making Russia India’s top oil supplier (40-44% of imports). In contrast, the EU’s €50.69 billion in Russian imports (2023) spans diverse goods.

Still, its energy reliance is lower, with only Hungary and Slovakia heavily dependent on Russian oil (via pipelines) and gas imports dropping to 6% of Russia’s exports. India’s $68.7 billion bilateral trade with Russia (2024-25) is higher than the EU’s energy-specific trade but smaller in total goods compared to the EU’s broader import portfolio.

Trump’s focus on India reflects its larger role in Russia’s oil exports (38% vs. the EU’s 6%) and strategic leverage in US-India trade talks, with India racing to finalise a deal by August 1. The EU faces less direct pressure, possibly due to its geopolitical alignment with the US and ongoing efforts to phase out Russian gas by 2027.

However, India’s Ministry of External Affairs has called out “double standards,” noting that EU nations import Russian energy and refined products (e.g., via India) while criticising India’s oil purchases.

Is Trump punishing European allies?

Trump’s tariff threats have not explicitly targeted EU nations with the same vigour as India or China. While the Russian Sanctions Act could theoretically apply to EU countries like Hungary or Slovakia, Trump’s rhetoric and actions (e.g., exemptions for allies in past tariff policies) suggest he’s prioritising non-aligned nations.

The EU’s imports of Russian LNG and pipeline gas, plus indirect purchases of refined Russian oil via third countries, have not drawn public tariff threats, unlike India’s. This discrepancy may stem from:

Geopolitical strategy: The US views the EU as a NATO ally, critical for countering Russia, whereas India’s non-aligned stance and growing Russian ties make it a softer target.

Trade dynamics: EU-US trade ($1.2 trillion in 2024) dwarfs India-US trade ($120 billion), making tariffs on the EU riskier for global markets.

Sanctions compliance: The EU’s partial sanctions adherence (e.g., banning Russian seaborne oil) gives it some cover, unlike India’s overt reliance on Russian crude.

The US imports $1 billion in Russian uranium annually, and NATO countries buy refined Russian oil indirectly, yet India faces harsher scrutiny.

Implications and outlook

Trump’s selective pressure on India aligns with his “America First” policy but risks straining US-India ties, especially as India diversifies oil sources (e.g., a 50% rise in US crude imports, 80% from Brazil in 2025). India’s Oil Minister Hardeep Puri asserts resilience, citing supplies from 40 countries and strategic reserves.

The EU, meanwhile, faces no clear tariff penalties despite ongoing Russian trade, suggesting Trump’s tariffs are more about geopolitical leverage than consistent enforcement. If the Russian Sanctions Act passes, its carve-out for Ukraine supporters could shield EU nations, while India’s non-aligned stance leaves it vulnerable.