U.S. Tariffs on India: Implications and Policy Options

General Studies Paper -3

Context: In August 2025, U.S. President Donald Trump imposed a 50% tariff on imports from India, including a 25% penalty related to India’s oil purchases from Russia.

India’s vulnerabilities in the global system.

• S. tariffs averaged 2–3% for two decades until April 2024 but the new hike marks a sharp departure.
• In return for tariff relaxation, the U.S. is demanding greater market access, especially for agricultural and dairy products, which could hurt Indian farmers.
• Despite being a U.S. ally, India faces steeper tariffs than China (now reduced to 30%).
• The tariff war highlights India’s vulnerabilities in the global system.

China’s influence

• China’s dominance stems from its massive production capacity and technological prowess.
• China holds 36.3% of global textile exports and 24.9% in machinery/electricals; India lags at 4.4% and 0.9% respectively.
• Initial 145% tariffs on China were reduced after diplomatic engagement.

Consequences for India

• Comparative Disadvantage: Indian exports (e.g., textiles) now face higher tariffs than competitors like Vietnam and Bangladesh, making them uncompetitive.
• Trade Deficit Risk:S. export earnings are vital for India’s external balance; tariffs threaten this inflow.
• Sectoral Vulnerability: Textiles, pharmaceuticals, and IT services may suffer job and income losses.
• Investment Implications: Continued tariff instability may deter global firms from shifting supply chains to India.

 India’s Policy Options

• Engage with the U.S. to recalibrate tariffs and protect strategic sectors.
• Leverage WTO and regional blocs to contest discriminatory trade practices.
• Shift from export-led to demand-driven growth via rising wages and consumption.
• Boost public spending to build human capital and resilience.
• Invest in high-value sectors (tech, pharma, clean energy) to reduce dependence on low-wage competitiveness.
• Role of youth : Indian immigrants in the U.S. have Excelled in education, technology, and entrepreneurship and Contributed to U.S. technological and economic dominance.
• Restricting Indian talent from U.S. jobs or visas could hurt U.S. interests long-term.
• Ensure equitable access to opportunities to prevent social fragmentation.

Conclusion and Way Forward

• A robust domestic market, empowered youth, and innovation-led growth are India’s best defence against global economic turbulence.
• This requires rapid increases in wages, incomes, and investment in high-value, tech-driven industries.
• India’s 120 million youth (15–29 years) can power a knowledge economy and therefore there is a need to expand vocational training, STEM education, and digital literacy.
• Harness diaspora networks for technology transfer and global influence.