Tariff Crossfire: How U.S. Trade War With India Threatens Economy, Sovereignty, and Global Alliances

In August, the US imposed a sizable 50% duty on Indian exports, inflicting a serious breakdown in the US–India relationship—the sort that has not happened in several decades. What appeared to be a thoughtful action by Washington to compel India to liberalize its markets and move away from Moscow has become instead a significant diplomatic, economic, and geopolitical standoff. The repercussions extend far beyond the trade space, literally questioning the trajectory of India's foreign policy direction, threatening the survival of millions of citizens, and reinvigorating talk of national sovereignty in the wake of the evolving world order.

In February 2025, the Trump administration imposed a 25% "reciprocal" tax on imports from India. This was done because it was believed that the access to the market between the countries wasn't reciprocal. The US administration argued that India hadn't afforded fair and comparable opportunities for US products and services in its marketplace. The initial tax applied to a wide selection of Indian goods entering the US.

Six months later, a second punitive 25% duty was leveled on August 27th. This second policy is directly connected to the current oil and arms trade between India and Russia, a step that the US administration took to counter its foreign policy objectives, particularly where global alignments and international sanctions are a concern. The addition of these two policies led to a significant 50% duty on a wide range of Indian products for export to America. The most impacted industries were apparel, seafood, gemstones, footwear, and furniture, all being key participants in the export-oriented economy of India.

The macroeconomic effects of these duties are important for India. With India's annual exports to the United States typically between $60 billion and $87 billion, a 50% duty on a large segment of these exports amounts to a serious problem. Nearly two-thirds of all Indian exports to America are now facing these increased levels of duties and have become much less competitive in the American marketplace. This is disastrous for a very significant component of the New Delhi-Washington economic relationship and has the potential to lead to lower levels of trade, export-oriented industry losses of jobs, and a broad-based effect on the growth of the Indian economy. On a longer time scale, the effects may lead to a reassessment of the trade policy of India and its geopolitical alignments in the context of these negative economic effects.

India's export industry has a lot to worry about in the near term because economists are of the opinion that possible losses of anywhere between $36 billion a year may lower the GDP growth rate by anywhere between 0.6 and 0.8 percentage points. These impact most severely on labour-intensive sectors like textiles, seafood (prawns), gems, and footwear, where roughly two million jobs are threatened if the present regime of protection through tariffs persists.

In response, the administration has just extended a duty waiver for cotton imports while seeking to reduce input expenses for exporters. Although the move will benefit manufacturing industries that depend on cheaper raw material inputs, it has raised alarm for local cotton-producing farmers who are worried about increased pressure when it comes to the harvesting season. Generally speaking, the effects of the tariffs are far-reaching beyond trade statistics by possibly upsetting employment and rural incomes, thereby impacting India's larger socioeconomic stability.

Whereas previous trade disagreements involved mere economic conflicts, these tariffs are a direct challenge to India's independent sovereign decision-making, especially when it comes to its Russian oil and defense acquisitions.

New Delhi has vociferously condemned the move as "unfair and unreasonable," underscoring the fact that its decisions are informed by the principles of strategic autonomy and self-interest. Critics argue that the United States is using the instrument of economic coercions for conditioning India's foreign policy course of action—an attitude that bodes ill for the international community and challenges India's autonomy in global affairs.

Prime Minister Modi responded with symbolic defiance—holding a warm meeting with Chinese President Xi Jinping and Russian President Vladimir Putin at the Shanghai Cooperation Organisation summit. For many observers, this was a clear signal that India might look forward to its eastward policy if pushed too hard by Washington.

Representative Ro Khanna branded the tariffs a "grave mistake," cautioning that such a step could have the unintended consequence of pushing India further into China's and Russia's arms. Economist Jeffrey Sachs criticized the policy as, in the long term, counterproductive for the United States, and implied that India should broaden its trade ties rather than rely so predominantly on Washington. Various Democratic lawmakers in the House and Senate leveled these criticisms, arguing that the imposition of the tariffs is detrimental to a major US alliance in Asia and will have a marginal impact in making Moscow change its trajectory vis-à-vis Ukraine.

Indian opposition leaders, led by Arvind Kejriwal, have criticized the Modi regime's typically mild policy. They have called for a far tougher reaction while going so far as to advocate the imposition of 100% retaliatory duties against US imports. This reflects a very clear requirement for a tougher and rigid foreign policy.

For so long, analysts have considered the US–India rapport a cornerstone of the Indo-Pacific policy. But the recent imposition of tariffs has injected considerable doubt and diluted reciprocal confidence. India, already mulling diversified trade avenues by itself for entities like the EU, UAE, the UK, and Australia, might now accelerate efforts to reduce dependence on the US marketplace. If these concerns are not addressed, the tensions so sparked are likely to dilute the Quad alliance (constituting the US, India, Japan, and Australia) and possibly push India further into the geopolitical orbit of China and Russia. India has formally triggered WTO consultations and is also seeking legal recourse in the courts of the United States, where the limits of presidential powers for tariffs, particularly measures by the Trump administration, remain under review by the courts. Meanwhile, discreet bilateral talks are underway, and the expectation remains for a full trade agreement by November 2025. Until that time, however, exporters are in a state of considerable confusion, and workers are already facing redundancies that point towards a dilemma for the Indian economy.

The fundamental question remains: Is it feasible for India to maintain its economic sovereignty while keeping its major global relationships? The new US tariffs are much more than a typical economic sanction; it is a watershed event in the strategic calculus. They actually test the strength of the resilience of the Indian economy, question the independence of its foreign policy, and challenge the depth and dependence of the US–India alliance. It will become clear in the coming months whether this disruption proves merely a transient spat or marks a larger shift in the global balance of power

Arsalan Zahir Khan is a student pursuing Electrical Engineering at Jamia Millia Islamia

Edited by: Sharmeen Shah

Disclaimer: The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of The Jamia Review or its members.