Background and timeline of Trump's Tariffs in 2025
Donald Trump used tariffs as a weapon since he was elected as the 47th president of the United States of America. He imposed 25% reciprocal tariffs earlier, stating that the establishment of a trade deal between India and the US was not possible. Additionally, a 25% penalty tariff is associated with India, as the country purchases Russian oil. A total of 50% tariffs on various goods exported to the US from August 2025 have been levied.
India imports nearly all of its crude, of which 35% comes from Russia. This is President Trump's reasoning behind the tariff hike. He has accused India of fueling the Russian war machine in Ukraine.
What happened due to Trump's tariff
in 2025?
The
US Department of Homeland Security (DHS) on August 25 in 2025 has issued a formal
draft notice confirming that President Donald Trump's administration is going
to double tariffs on Indian imports from 25% to 50% which will be effective
from 12:01 am, August 27 in 2025, onward. The order is rooted in Executive Order 14329, signed by Donald Trump earlier this month, which is associated with the continued purchase of Russian crude oil that increased concerns of US
national security. This notice applies to all Indian origin goods entering
the United States, including those cleared from bonded warehouses after the
deadline.
Also Read: A Full Breakdown of Donald Trump’s New Tariff Plan in 2025
Why does India remain confident despite Trump's tariffs in 2025?
External buffers
The
foreign exchange reserve or FX reserve of India is around 690 to 700 billion
dollars in August 2025, which provides a shield to the RBI to manage the
imports and rupee volatility. It ultimately prevents the panic cycles because
of currency fall, which is one of the key factors for increasing inflation and
instability in GDP.
Consumption-driven economy
India
is not an export-oriented country. 60% of the GDP is based on household
consumption, which reflects that India has the demand for its own products that
do not allow the country to depend on exports only. Therefore, the domestic
demand provides insulation from export shocks. Moreover, the government is
providing various benefits, including GST cuts, bringing reforms to investment, along
with red tape reduction.
Macroeconomic credibility
The
American credit rating agency S&P Global Ratings has rated India at BBB in
August 2025, citing the fiscal consolidation, robust growth and controlled
inflation. It has the ability to boost investor confidence and decrease
borrowing costs.
Active policy tools
The
Reserve Bank of India has signalled readiness to provide liquidity support,
interest rate flexibility and FX intervention. The government's measures
related to subsidies, export initiatives and RoDTEP extensions will be
executed. The credit support for the MSME is said to be provided. For all that,
approximately 2250 crore export promotion mission has been proposed.
Trade diversification
India
will explore new markets like the Middle East, Latin America, Southeast Asia
and China to divert the Exports from the US. India already plans to expand the
programs in 40 nations to push the textile exports in the trade environment of
50% US tariffs. The exporters are shifting shipments to Bangladesh, Vietnam and
others.
Geopolitical dimension
The tariffs which are levied by the United States are directly linked to the Russian oil imports by India, which is viewed as a trade weapon in the geopolitical dimension. Tariff risk will undermine US Indian strategic partnership. India is doubling down on the multipolar ties with China for trade, in Russia for energy and expanding its other business with the Middle East.
Economic impact due to Trump's tariffs in 2025
Immediate impact
Due
to the vast tariff, the rupee becomes weakened. Besides, equities have slipped
in the stock market. The exporters have warned that 55% of India's goods
exported to the US have been affected. The sectors that mostly witnessed
challenges due to this tariff are carpets, leather, Gems and Jewellery,
furniture, textiles and shrimp. The analysts estimate that approximately 0.8%
of the GDP can be hampered if the situation continues.
Short-term impact
Volatility
in the rupee and equity markets, job losses and decreased exports in clusters
in the gems and textiles can hit India’s GDP.
Medium term
Within
6 to 24 months, if India leads the diversification and business reforms, then
it can deal with the impact of the huge tariff and also attract capital.
Long term
After
2 + years, India can have a diversified trade base, resilient economy and
stronger self-reliance that would mitigate prolonged tariff war, persistent
export losses and fiscal stress.
Way forward
The confidence of India lies in macro buffers such as huge FX reserves, a consumption-driven economy, diversified trade diplomacy and active RBI and fiscal policy. The tariffs will hurt India in the short term, but India is positioned to adapt, absorb and even emerge stronger if reforms and diversification continue.
Disclaimer: This article is based on publicly available information and independent analysis. It is intended for informational purposes only and does not represent the views of any government or organisation.
Author: Snigdha Dhibar