Trump Imposes 50% Tariffs on Indian Goods Over Russian Oil Purchases

Donald Trump has imposed a significant 50% tariff on goods imported from India, reacting to the country’s continued purchases of Russian oil. This decision threatens to impact more than half of India’s exports to its largest market, with estimates indicating that the tariffs, effective from August 27, 2023, will affect approximately £35.8 billion ($48.2 billion) worth of exports.

Initially, Trump announced a 25% tariff, but he later signed an executive order adding another 25% due to India’s ongoing oil transactions with Russia. The cumulative effect of these tariffs raises concerns among Indian officials about the viability of their shipments to the United States, potentially leading to job losses and a slowdown in economic growth.

Impact on Indian Economy and Exports

Trade relations between the US and India have grown in recent years, yet they remain susceptible to tensions over market access and domestic political dynamics. As one of the fastest-growing major economies, India now faces the possibility of a significant economic downturn as a result of these tariffs. According to the Global Trade Research Initiative, sectors that rely heavily on exports, including textiles, gems, jewellery, leather goods, food, and automobiles, are likely to experience the most severe impacts.

Ajay Srivastava, founder of the think tank and a former Indian trade official, described the new tariff regime as a “strategic shock.” He warned that this move could dismantle India’s established presence in the US market, leading to unemployment in export-driven sectors and diminishing India’s role in the global industrial value chain.

Some sectors have received temporary relief, as the US has exempted pharmaceuticals and electronic goods from the additional tariffs for the moment. Yet, exporters like Puran Dawar, who operates in the leather footwear industry, express concern about the immediate effects. Dawar, whose clientele includes brands like Zara, stated, “This is an absolute shock,” highlighting the urgent need for increased domestic demand and new overseas markets for Indian products.

Challenges Ahead for Indian Exporters

Groups advocating for exporters caution that the new tariffs could disproportionately affect India’s small and medium enterprises, which heavily depend on the US market. Ajay Sahai, director general of the Federation of Indian Export Organisations, remarked on the precarious situation: “Some product lines will simply become unviable overnight.”

Despite ongoing negotiations for a bilateral trade agreement—five rounds have been held without a conclusive deal—India has resisted opening its agriculture and dairy sectors to cheaper US imports. Indian officials assert that such moves would jeopardize the livelihoods of millions who depend on these sectors. Prime Minister Narendra Modi has publicly committed to prioritizing the interests of farmers and small businesses, stating during a rally in Gujarat, “For me, the interests of farmers, small businesses and dairy are topmost.” He further criticized the current climate, calling it a “politics of economic selfishness.”

As the situation develops, the long-term implications of these tariffs on US-India trade relations and India’s economy remain to be seen.