The Announcement

U.S. President Donald Trump on Wednesday confirmed that all imports from India will attract a 25% tariff from August 1, alongside an unspecified “penalty.” Trump cited three reasons:

1. India’s continued purchase of energy and defence equipment from Russia,

2. High Indian tariffs on U.S. goods, and

3. “Obnoxious” non-monetary barriers that restrict U.S. market access.

While the new tariff is marginally lower than the earlier threat of a 26% levy, the additional “penalty” remains undefined, adding to trade uncertainty.

India’s Ministry of Commerce responded cautiously, stating it was “studying the implications” and would take “all steps necessary to secure national interest.”

U.S.-India Trade Tensions: Background

• Since April, Trump has used tariffs as leverage in his “Liberation Day” tariff campaign, arguing that U.S. exports face disproportionately higher duties abroad.

• India was granted a 90-day pause, later extended to August 1, during which negotiators worked on a mini-trade deal. That now stands shelved.

• A broader Bilateral Trade Agreement had been under negotiation since February, with hopes of conclusion by late 2025. Trump’s announcement signals no breakthrough is expected in the near term.

Industry Reactions in India

Gem and Jewellery Sector

• The U.S. is India’s largest market for gems and jewellery — worth over $10 billion annually (about 30% of global exports).

• The Gem & Jewellery Exports Promotion Council (GJEPC) warned that the tariffs could:

  • Inflate costs,

  • Delay shipments,

  • Threaten livelihoods from small artisans (karigars) to large manufacturers.

GJEPC Chair Kirit Bhansali urged dialogue, warning of “far-reaching repercussions across India’s economy.”

Apparel and Textiles

• India’s apparel exports to the U.S. are worth over $4 billion annually.

• With a 25% tariff, Indian garments will be 7–10% more expensive compared to competitors like Bangladesh and Vietnam.

• Rahul Mehta of CMAI said:

  • The blow is severe but cushioned by India’s recent FTA with the U.K. and ongoing negotiations with the EU.

Macroeconomic Concerns

• Economist Aditi Nayar (ICRA) said the tariffs could drag India’s GDP growth. Earlier projections for FY26 were cut to 6.2%, factoring in weaker exports and delayed private investment.

India’s Strategic Dilemma

Trump’s framing of tariffs as a penalty for Russian oil and defence imports complicates the issue. India has:

• Increased imports of discounted Russian crude since the Ukraine war, making Moscow its largest oil supplier.

• Continued defence ties with Russia, though it is diversifying procurement.

The U.S. move is thus not just about trade imbalances, but also about geopolitical signalling — penalising India for pursuing strategic autonomy.

Implications for India

1. Export Losses:

   • Gems, jewellery, textiles, and apparel will face immediate competitiveness shocks.

   • MSMEs in these sectors could be hardest hit.

2. Strategic Pressure:

   • Tariffs linked to Russian trade put India under pressure to rethink crude imports and defence procurement.

   • But reducing dependence on Russia abruptly is not feasible.

3. Diversification Push:

   • The blow may accelerate India’s push towards FTAs with the EU and other markets.

   • The recent India-U.K. trade deal becomes even more critical.

4. GDP Impact:

   • Exports account for ~21% of India’s GDP. A tariff-induced slowdown could dampen growth and investment sentiment.

India’s Options

• Diplomatic Channels: Push for negotiations, possibly linking the tariffs to a broader India-U.S. trade pact.

• Legal Recourse: Approach the World Trade Organization (WTO), though the U.S. has historically ignored unfavourable rulings.

• Counter-tariffs: India may impose retaliatory duties on U.S. goods, though that risks escalation.

• Diversification of Markets: Accelerate access to EU, U.K., ASEAN, and African markets to absorb the export shock.

Conclusion

Trump’s 25% tariff announcement marks a serious disruption in India-U.S. trade ties. By linking the penalty to India’s Russian purchases, Washington has blended geopolitics with trade policy. For India, the challenge is to shield key export sectors while continuing to assert its strategic autonomy in energy and defence. The immediate costs will be borne by gems, jewellery, and apparel exporters, but the broader stakes lie in how India repositions itself in an increasingly protectionist global order.