Trump's tariff stick for India, carrot for Pak: What’s real, what’s rhetoric and the 'dead economy' myth

File photo of US President Donald Trump shaking hands with Prime Minister Narendra Modi during a joint press conference in the East Room of the White House in Washington, DC, on February 13, 2025. (Photo by Jim WATSON / AFP)

The India-US relationship is undergoing a seismic shift. Once seen as a pivotal partner in the United States’ Indo-Pacific strategy and a key counterweight to China, India now faces one of the most hostile economic policies ever directed at it by Washington. At the heart of the latest diplomatic rupture is President Donald Trump’s decision to slap 25 per cent tariffs on Indian imports – a rate higher than those levied on several South Asian countries, including Pakistan. If that weren’t enough, Trump has also warned of additional penalties on India over its longstanding oil and defence trade with Russia.

Trump’s recent tirades – calling India a “dead economy”, criticising his trade policies and mocking its ties with Moscow – represent a fundamental departure from previous US administrations that sought to deepen strategic and economic ties with New Delhi. The rhetoric, backed by punitive tariffs, is not just economic coercion but a diplomatic slap that risks undoing years of bipartisan progress in US-India relations.

In context of Trump’s actions, India is now being bracketed with Pakistan – a country Trump recently courted with a new oil deal and a warm reception for its Army chief Asim Munir. The optics are impossible to ignore: Trump is rewarding a nation long accused of harbouring terror, while punishing the world’s fastest-growing major economy. But Trump’s rhetoric doesn’t hold up to scrutiny as India’s growth story is far from “dead,” and his economic belligerence may do more harm than good, to both nations.

The decline of ‘friendship’ narrative

The India-US relationship under Donald Trump is not what it used to be. While his first term was marked by bonhomie with Indian Prime Minister Narendra Modi, the second term has revealed a very different attitude – one where strategic patience and mutual respect have been replaced with coercion, transactionalism, and even contempt.

Trump’s decision to impose a 25% tariff on Indian goods, surpassing even the 19% tariff on imports from Pakistan, is only the latest chapter in this shift. He has announced a new oil deal with Pakistan, lauding Islamabad for its cooperation — a move many analysts viewed as an implicit endorsement of Pakistan’s military establishment, particularly Field Marshal Asim Munir. This comes even as India continues to blame Pakistan-based proxies like Lashkar-e-Taiba and its offshoots for the Pahalgam terror attack.

In 2018, during his first term as the US President, Trump had slammed Pakistan, saying the country has given the US nothing but “lies and deceit.”

India no longer the alternative to China?

In previous years, especially under the Obama administration and Trump’s own first term, India was hailed as the “democratic alternative” to China in global supply chains and a bulwark against Chinese military and economic aggression. But that narrative is fast eroding.

Trump has signalled that India is no longer indispensable to American strategic goals. His criticism of India’s military imports from Russia, threats of secondary sanctions, and now punitive tariffs reflect a growing frustration with India’s strategic autonomy, particularly its refusal to toe the US line on Ukraine and China.

India’s carefully calibrated neutrality -- meant to serve its national interest -- is being interpreted in Washington as disloyalty.

Debunking Trump’s ‘dead economy’ jibe

Trump calling India a “dead economy” is far from reality. India is currently the fastest-growing major economy, with GDP growth projected at 6.5% for 2025–26 by the RBI, compared to just 1.8–2% for the US, according to the Federal Reserve. Major US companies continue to invest heavily in India across key sectors like technology, defence, semiconductors, and pharmaceuticals.

India’s industrial production is rising steadily, and its services exports, especially in IT and consulting, are booming. Nasscom projects tech services exports to cross $200 billion in 2025. Global giants like Apple, Google, and Amazon are ramping up operations. India also has the world’s third-largest startup ecosystem and continues to attract foreign investment, particularly in green energy, infrastructure, and manufacturing under government PLI schemes.

Though factually incorrect, Trump’s remark has serious diplomatic weight. Coming from a US President, it undermines India’s economic credibility and could strain bilateral ties. It also hands propaganda material to rivals like China and Pakistan, who often try to downplay India’s global rise.

How Trump’s tariff could cripple Indian exports

India’s economy might be resilient, but the 25 per cent tariff will bite, and bite hard.

According to State Bank of India (SBI) estimates reported by CNBC-TV18, a 20% tariff could slash 0.5 per cent (50 basis points) from India’s GDP. At 25 per cent, this figure jumps to 62 basis points, potentially dragging India’s growth rate below 6 per cent — from an estimated 6.5 per cent to around 5.87 per cent.

This would not only hurt India’s GDP, but also create cascading effects on jobs, investment sentiment, and fiscal consolidation plans.

According to an SBI study, a 25 per cent tariff could reduce India’s export volumes to the US by around 12.5 per cent. This is a major concern, as the US is India’s top export market, buying nearly $80 billion worth of goods in FY24. The study notes that every 1 per cent rise in tariffs leads to a 0.5 per cent drop in export volumes.

Key Indian industries that could take a hit include textiles and garments, pharmaceuticals, engineering goods, gems and jewellery, and IT hardware. These sectors are highly dependent on US demand and could struggle to stay competitive with higher tariffs.

If Indian exporters lose their edge in the US market, countries like Vietnam, Bangladesh, and even Pakistan, benefiting from lower tariffs under Trump, could step in to fill the gap. This would be an ironic setback for India, especially if Pakistan ends up gaining from the same US administration that’s penalising New Delhi.

India’s response and strategy

India, in its initial response to Trump’s announcement, said that it had “taken note” of the statement and underlined its continued commitment to a fair bilateral trade agreement with the United States. The government also pointed out that negotiations between the two countries had been underway for several months.

“The Government has taken note of a statement by the US President on bilateral trade. The Government is studying its implications. India and the US have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective,” the Ministry said in a statement issued Wednesday evening.

Highlighting that the government places the “utmost importance on protecting and promoting the welfare of” farmers, entrepreneurs, and MSMEs, the Ministry also drew a parallel to the recent trade agreement signed with the UK.

At the same time, India is looking to diversify its trade partnerships and reduce overdependence on any single market. One notable shift is its recent push to reset ties with China, despite past border tensions. Indian officials have quietly engaged with Chinese counterparts to boost trade cooperation, eyeing increased access to Chinese markets and investment in key sectors. This pragmatic recalibration is part of a broader strategy to hedge against unpredictable Western trade policies and strengthen India’s global trade resilience.

ANZ economists Dhiraj Nim and Sanjay Mathur estimated that if the tariffs remained for the rest of 2025–26, they could subtract 40 basis points from GDP. Barclays predicted a 30 basis points hit, and Nomura put it at 20 basis points -- all significant impacts in a country striving to remain above the 6% growth mark.

Trust erodes

Trump’s latest actions amount to unprecedented interference in India’s sovereign choices. India has consistently maintained that its ties with Russia, especially in defence, are strategic and vital, with over 60 per cent of its military gear sourced from Moscow.

By pushing a “with us or against us” stance, Trump risks damaging trust and forcing India’s strategic community to rethink the risks of relying too much on the US.

One of the pillars of the India-US relationship has been its bipartisan support in both countries. Under Democrats and Republicans alike, India was treated with a degree of respect and understanding.

Trump has broken that consensus. From meddling in Kashmir, equating India with Pakistan, to now pushing India into economic retaliation, he has replaced strategic engagement with suspicion.

This shift threatens to undo the cumulative gains of the civil nuclear deal, defence cooperation agreements, QUAD coordination, and joint technology initiatives built over two decades.