In a sharp escalation of trade tensions, US President Donald Trump on July 30 announced a 25 percent tariff and an additional penalty on Indian imports, effective August 1, 2025. However, the move is being interpreted as a tactical manoeuvre aimed at extracting better trade concessions, not a final policy decision.
“Just a threat to force a better deal. Doesn’t sound like being final yet,” former NITI Aayog Vice-Chairman Rajiv Kumar told Moneycontrol, downplaying the significance of Trump’s statement. The 25 percent tariff plus penalty is being viewed as an early-stage bargaining ploy rather than a definitive policy stance.
Bilateral talks
The announcement comes even as trade negotiations between the two countries remain ongoing. A team of US government negotiators is expected to visit New Delhi in the second half of August to hold the next round of discussions for the proposed Bilateral Trade Agreement (BTA). The fifth round of talks was held earlier in July in Washington.
Trump, while speaking to reporters on July 30, said, “We are talking to India now, we will see what happens. It does not matter very much whether we have a deal with them or whether we charge them a separate tariff, but you will know by the end of this week.”
India penalised
Announcing the punitive tariffs on his social media platform Truth Social, President Trump said India would face the new tariff regime for continuing to buy military equipment and oil from Russia. “Remember, while India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high, among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country,” Trump said.
While the 25 percent tariff will apply broadly, he did not specify the size of the additional penalty over and above that rate. This marks the first instance of what the Trump administration is calling “secondary tariffs”, part of a wider shift to use trade measures as tools of economic pressure.
The term “secondary tariffs” refers to punitive trade measures applied to countries that fail to align with US sanctions or trade conditions – often linked to geopolitical stances. These are distinct from standard tariffs and are typically used to isolate countries that continue business with US’ adversaries such as Russia. Under this framework, India has been targeted for continuing defence and energy imports from Russia despite US pressure.
According to a New York Times report, this strategy reflects a growing trend in Washington to replace traditional sanctions with trade-based economic warfare. “This shows how he [Trump] is replacing some of the traditional sanctions tools in the US arsenal with an expanded use of trade measures for economic warfare,” the paper reported.
Under the Trump administration’s new tariff structure, India faces one of the highest rates globally. The 25 percent tariff imposed on Indian goods is higher than the rates applied to countries that have reached partial agreements with the US – European Union (15 percent), UK (10 percent), Indonesia (19 percent), Philippines (20 percent), and Vietnam (20 percent). Only China faces a higher tariff rate at 30 percent, while Malaysia also faces a 25 percent rate. However, India faces lower tariffs than those imposed on countries such as Bangladesh (37%) and Sri Lanka (44%).
Pharma exports
While pharmaceuticals were initially exempted from the tariff, there is ambiguity around whether these 25 percent duties will apply to pharma exports as well, offering only temporary relief to Indian drug exporters. India’s pharmaceutical exports to the US have consistently ranked among the highest in value terms.
India’s biggest export to the US remains electrical machinery, including smartphones, which accounted for exports worth $12 billion in 2024, according to a recent report by Barclays.
The US is India’s largest trading partner in goods and services. A full-blown tariff war would hurt Indian exporters across sectors, including auto components, textiles, and electronics, just as they are recovering from global demand headwinds.
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