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Abhiruchi Chowdhury
11 August 2025 |
What happened?
On 6 August, US President Donald Trump authorized an executive order to impose an extra 25 per cent duties on Indian exports to the US. As per the White House, the decision was taken as a response to New Delhi’s continual purchase of oil from Russia. The Ministry of External Affairs, India called the imposition of tariffs as “unfair, unjustified, and unreasonable.” The total 50 per cent tariffs are set to apply from 27 August.
On 7 August, PM Modi said “India will never compromise on the wellbeing of its farmers, dairy and, fishermen.”
On the same day, Trump refused to hold any discussion with India regarding trade unless US’s concerns regarding India’s purchase of Russian oil was addressed.
What is the background?
First, India’s trade deal negotiations with the US. In February, Modi visited Washington DC. During his visit, the two countries decided to increase bilateral trade volume to USD 500 billion by 2030. He also agreed to increase energy imports from the US. In March, India’s Minister of Commerce and Industry Piyush Goyal met US Secretary of Commerce Howard Lutnick and US Trade Representative Jamisen Greer. As per New Delhi, discussions regarding the bilateral trade agreement were going in the right direction. In April, US Vice President JD Vance visited India, after which New Delhi informed that a potential deal could be signed before 9 July. In June, Trump claimed that a “big trade deal” with India would soon be inked. In June, as per Reuters, negotiations between the two countries took a hit after New Delhi refused to open up its markets for agricultural imports.
Second, India-US trade relations. In 2024, the total bilateral goods trade amounted USD 128.9 billion. The US exported goods worth USD 41.5 billion, whereas it imported goods amounting USD 87.3 billion from India. The US trade deficit with India in 2024 grew by 5.9 per cent in comparison to 2023. Since the 2021-22 financial year, US has been India’s largest trading partner. India’s 98 per cent solar module, 88 per cent of cement and artificial stones, 80 per cent of cotton linen and plastic-coated textiles, and 80 per cent of sea food exports goes to the US.
Third, India’s reluctance in reducing import duties on agricultural products. American farm companies over the past few years are wanting to sell their surplus in India. Two major issues are associated with the import of American dairy products and genetically modified (GM) crops. First, as per directives for import of dairy products in India, the same should be derived from cattle that does not consume blood meal- a powdered protein obtained from poultry blood. The exporters in the US see this as a non-tariff hindrance. Second, US wants India to allow the import of genetically modified crops. However, most of the crops such as mustard, brinjal are indigenous to India and the government might see a backlash from the public if it decides to import GM crops. Further, Indian farmers will also be unable to export GM crops produce to Europe.
Fourth, New Delhi dismissing Trump’s role in negotiating ceasefire between India and Pakistan. Trump had continually asserted that he compelled India and Pakistan for agreeing to a ceasefire. Trump’s claims have been vehemently dismissed by New Delhi. On 17 June, Trump held a phone conversation with Modi. After the conversation, India’s Foreign Secretary Vikram Mistri asserted that Modi had clearly conveyed his stance to Trump about US not having any role in negotiations of ceasefire between India and Pakistan. Further, he stated that India would dismiss any kind of mediation from the third parties. New Delhi continues to maintain that ceasefire discussions took place among the military leaders of India and Pakistan. As per Bloomberg, after the phone conversation, strain in bilateral relations exacerbated.
What does it mean?
First, a combination of at least three issues has led to the increase in Trump’s tariffs on India namely- India not wanting to open its market for US farm products, India continuing to buy Russian oil despite US President’s repeated warnings, and the current government refusing to accept Trump’s claims on negotiating ceasefire between Pakistan and India.
Second, the imposition of tariffs is not good news for those American industries which heavily depend upon cheap Indian imports. Three per cent imports from India arrive into the US from sectors in which India has a market share of more than 50 per cent. The tariff increase is also equally distressing for Indian exporters who heavily relied on the American market. American industries would probably look for cheaper alternatives in sectors where India does not have a considerable market share.
Third, the importing of GM crops would have primarily catered to the interests of big farming companies in the US. The decision to allow the import of GM crops would have had severely hit the organic farmers in India. For the organic farmers in India, it would have been impossible to stop the inter-mixing of GM and non-GM crops, which means they no longer could have claimed of producing organic crops.
About the Author
Abhiruchi Chowdhury is research assistant at the National Institute of Advanced Studies (NIAS).
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