WASHINGTON, D.C. – The United States has enacted a new 50% tariff on a wide range of Indian goods, a move that is expected to significantly impact India’s trade and economy. The new rate, which took effect on Wednesday, builds on earlier tariff increases and is aimed at penalizing India for its continued purchase of Russian oil.
Economic, and Sectoral Impact
The tariff, one of the highest imposed by the US, will be applied to goods including gems, jewelry, garments, footwear, furniture, and industrial chemicals. Analysts from the Global Trade Research Initiative (GTRI), a New Delhi-based think tank, project that Indian exports to the US could plummet from $86.5 billion to approximately $50 billion by 2026.
According to GTRI, the sectors that will be hit the hardest are textiles, gems, jewelry, shrimp, and carpets, which could see a 70% collapse in exports, threatening hundreds of thousands of jobs. The move places India at a significant competitive disadvantage, potentially benefiting rival economies like Vietnam, Bangladesh, and Pakistan.
The Indian pharmaceutical industry has been notably exempted from the immediate tariff increases due to its critical role in providing affordable generic drugs to the US market, a sector valued at $8.7 billion in 2024.
India’s Response, and Strategic Shifts
In response to the tariffs, Indian Prime Minister Narendra Modi has pledged to protect domestic industries by cutting taxes and promoting self-reliance, a policy he initiated during the COVID-19 pandemic. The government is planning to offer financial assistance and other incentives to affected exporters to help them diversify into new markets in Latin America and the Middle East.
This trade friction with the US is pushing India to re-evaluate its foreign trade policy. There are indications that New Delhi may now be more open to joining multilateral trade pacts, a stance it had previously resisted. Furthermore, the tariffs have encouraged India to strengthen its ties with other major powers, including China and Russia, in a strategic move to rebalance its relationships and reduce its reliance on the US market.
US Justification, and Geopolitical Context
The US cited India’s ongoing purchase of Russian oil as the primary reason for the tariff hikes. US Treasury Secretary Scott Bessent has accused India of “profiteering” and funding Russia’s war against Ukraine, pointing out that India’s imports of Russian oil have surged from 1% before the conflict to 37%.
India’s foreign ministry has countered these claims, stating that its energy imports are a matter of national interest and driven by market forces. The ministry also noted that the US has not imposed similar tariffs on the European Union and China, both of which also continue to import energy from Russia.
The escalating trade dispute highlights the deepening geopolitical tensions and the challenges facing the global economy as nations navigate complex strategic relationships.
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