The Unlikely Trade War How a 50% Tariff Threatens to Unravel 25 Years of US-India Relations

An Unexpected Morning in Delhi

Anuj Gupta stares at his silent phone in his Delhi shop filled with garment accessories laces buttons and zippers that usually supply major global fashion brands. For thirty years his business has thrived on the rhythm of international orders but this morning brings only silence. Until yesterday I was hoping maybe Trump was just bullying for optics or maybe Modi's good relations with the US would rescue the situation he tells Al Jazeera. But we were the worst dealt.

Half a continent away Kirit Bhansali of India's Gems and Jewellery Export Promotion Council watches as his industry faces what he calls an earthquake. His colleague in the shrimp exporting business K Anand Kumar, is already laying off workers from among his 3,500 employees. It is like being in a nightmare Kumar says where you do not know what new random tariff number you wake up to next.

These personal stories represent the human face of a geopolitical crisis that has suddenly brought U.S.-India relations to their lowest point in decades. What led to this moment and what does it mean for the future of these two democracies? The answers reveal a complex story of geopolitical ambition economic reality and the unpredictable nature of contemporary international relations.

Understanding the Basics: What Exactly Happened?

The Tariff Timeline

On August 27 2025 the Trump administration followed through on its threat to impose 50% tariffs on most Indian goods entering the United States. This dramatic move came in two phases an initial 25% tariff announced on August 1 followed by an additional 25% penalty tariff. 

The affected products span across dozens of categories from textiles and apparel to leather goods marine products chemicals automobiles and agricultural goods. Notably exempted are pharmaceuticals, semiconductors, energy products and critical minerals—areas where the U.S. recognizes its own dependency on Indian imports. 

Table US Tariff Implementation Timeline on Indian Goods (2025)

Date Event Tariff Impact

April 2 2025 Announcement of reciprocal tariffs 26% tariff announced (later adjusted to 25%)

August 1 2025 Initial tariff effective 25% tariff implemented

August 27 2025 Additional penalty tariff Total tariff reaches 50% for most goods

October 5, 2025 Grace period ends All goods subject to 50% rate regardless of shipment date

The Official Reasons vs The Unspoken Truths

The Trump administration officially justifies these tariffs as punishment for India's continued purchase of Russian oil which Washington claims helps finance Moscow's war in Ukraine. "India's Russian oil imports went from 1 percent before the Ukraine war to 37 percent," noted U.S. Treasury Secretary Scott Bessent accusing India of "profiteering.

However trade experts point to additional factors

Persistent trade deficit The U.S. had a $45.7 billion trade deficit with India in 2024 

High Indian tariffs: Trump has repeatedly complained about India's "obnoxious tariffs on American goods, particularly in agriculture where India's average tariff rate is 39% compared to America's 4% 

Strategic disagreements: India's participation in BRICS (with Brazil, China, Russia, and South Africa) has irritated Washington 

From Partners to Adversaries How Did We Get Here?

The Foundation of a Friendship

The current crisis represents a dramatic reversal from what had been 25 years of steadily improving relations. Since the end of the Cold War, successive American administrations—both Democratic and Republican—had invested diplomatic capital in strengthening ties with India as a counterweight to China and as a fellow democracy. 

This partnership reached symbolic heights with Prime Minister Narendra Modi's visit to the U.S. in February 2025 where both leaders agreed on Mission 500—an ambitious plan to reach $500 billion in bilateral trade by 2030. 

The Unraveling Begins

The deterioration began subtly. In mid-June 2025, following the G7 Summit in Canada, Trump invited Modi to a dinner in Washington on his return journey. Modi respectfully declined citing pre-existing commitments and instead proceeded to Odisha. Though diplomatically courteous the snub was noted. 

Tensions escalated further after Trump publicly claimed he mediated a ceasefire between India and Pakistan following the Pahalgam terrorist attack that killed 26 Indian civilians. India swiftly rejected this asserting no U.S. role in the military negotiations. 

The Oil That Greased the Fire

India's dependence on Russian oil proved to be the breaking point. As the world's third-largest oil consumer, India found itself caught between Western sanctions against Russia and its own energy needs. Since the Ukraine war began, Russia's share of India's oil imports jumped from less than 1% to about 40%, drawn by steep discounts that reportedly saved India $17 billion. 

Despite narrowing discounts (from $20-25 below benchmark Brent crude in 2022 to about $2.50 today) India continued buying because as Ambassador Vinay Kumar explained it secures energy reliably and relatively cheaply.

The Economic Earthquake: Measuring the Impact

Sector-by-Sector Devastation

The 50% tariff rate—16 percentage points higher than China's 31 points higher than most Southeast Asian countries, and 35 points above South Korea's rate—has been likened by investment house Nomura to a trade embargo.

Table Most Affected Indian Export Sectors

Sector Export Value to US (Pre-Tariff) Projected Impact Jobs at Risk

Textiles & Apparel $10.3 billion 70% export collapse 150,000 in Tiruppur alone

Gems & Jewellery $5.3 billion Severe disruption Unknown

Marine Products $7.38 billion (total exports) Major cutbacks Nearly 1 million in shrimp industry

Leather & Footwear Significant but unspecified 70% export collapse Hundreds of thousands

Automotive Parts Significant but unspecified Major disruption Unknown

The textiles industry faces particularly dire straits. Mithileshwar Thakur of the Apparel Export Promotion Council notes that Indian exporters now face a 30% cost disadvantage compared to competitors in Bangladesh Vietnam and Cambodia. 

Even if tariffs are eventually lowered the damage may be permanent. Ajay Srivastava a former Indian trade official, warns that competitors like China Vietnam Mexico Turkey and even Pakistan Nepal Guatemala and Kenya stand to gain, potentially locking India out of key markets even after tariffs are rolled back.

The Macroeconomic Shockwaves

Economists estimate the tariffs could

Reduce India's GDP growth by 0.3-1 percentage point this fiscal year 

Cut overall exports to the U.S. by 43%  from $86.5 billion to about $50 billion 

Cause a $4-5 billion drop in engineering exports alone 

Weaken the Indian rupee, raising concerns about imported inflation 

Beyond Economics The Diplomatic Crisis

A Relationship Repoliticized

Perhaps more damaging than the economic impact is the collapse of trust between the two nations. As former U.S. deputy assistant secretary of state puts it: The repoliticization of bilateral relations is a slow-motion catastrophe.

The Carnegie Endowment for International Peace warns that Trump's actions have made relations with the United States a combustible domestic political issue in India. The opposition the media and the Indian public have put the government on notice to avoid showing weakness in the face of Trump's threats.

The Pakistan Paradox

Adding insult to injury from India's perspective is Trump's simultaneous outreach to Pakistan. While imposing 50% tariffs on India, the U.S. gave Pakistan a preferable tariff rate of just 19% and pledged to jointly explore Pakistan's oil reserves. This occurred within weeks of a terrorist attack on India that killed 26 civilians in Pahalgam. 

This contrast seems particularly glaring to Indian observers given that Trump himself has acknowledged that Pakistan has ties and relationships probably with the Taliban that are stronger than any other country's relationships. 

The Strategic Miscalculation

Many analysts believe Trump has fundamentally misjudged the relationship. Whereas previous administrations viewed India through a strategic lens—as a counterweight to China—Trump appears to view it primarily through a transactional lens focused on trade deficits and immediate gains. 

As Happymon Jacob writes in Foreign Affairs America has much more to gain from China than it does from India. Through that lens, Washington has much more to gain from China than it does from India; the war in Ukraine must end because supporting Ukraine is not worth American taxpayers money and Europe's problems with Russia are Europe's problems not those of the United States.

Global Reactions and Alignments

International Condemnation

The U.S. tariff policy has drawn criticism from unexpected quarters:

U.S. House Foreign Affairs Committee Democrats criticized the move saying it would hurt Americans and "sabotage the U.S.-India relationship while doing little to address the Ukraine war 

Australian Foreign Minister Penny Wong stated that Australia does not support tariffs and continues to believe in open trade as the foundation of economic growth 

German officials consistently support reducing tariffs to a minimum viewing them as obstacles to free trade 

The Economist's Perspective

Most economists view the tariffs as counterproductive. As one analyst notes Tariffs by and large do two things. They raise prices for consumers and they make manufacturers back at home less competitive.

The same commentator uses an apt analogy For nutrition science... everybody agrees that eating lots of refined sugar is bad. There's no disagreement about that... tariffs are the equivalent of refined sugar. You'll be very hard pressed to find many economists... that tariffs are bad and trade wars are destructive.

India's Response From Defiance to Diversification

The Official Posture

India's response has blended defiance with pragmatism. The Ministry of External Affairs condemned the tariffs as unfair unjustified and unreasonable  emphasizing India's sovereign right to make energy decisions based on its national interest. 

Prime Minister Modi struck a defiant tone in his Independence Day speech No matter how high the pressure India will continue to build its strength to withstand it. India is ready to pay a very heavy price to protect its interests. 

The Economic Countermeasures

India's response includes several strategic elements

Domestic stimulus: Plans to shake up the nationwide goods and services tax cutting most rates to 5% or 18% to boost spending 

Export support A potential multibillion-dollar package to free up cash for exporters, with proposals for a one-year moratorium on repaying principal and interest on loans 

Market diversification: Accelerated efforts to sign free trade agreements, including recently with the UK and potentially with the EU by year's end 

Import substitution Modi's appeal to citizens to prioritise purchasing goods that are made in India

The Geopolitical Pivot

Perhaps most significantly, India appears to be recalibrating its foreign policy. Modi is making his first visit to China since relations froze after their 2020 border clash to attend the Shanghai Cooperation Organisation summit. 

As journalist MK Venu notes Most strategic experts in India have already said that the trust between India and the US is at an all-time low. So there is an assessment that India will rebalance towards Russia, towards China and towards BRICS.

The Path Forward Resolution or Rupture?

Potential Compromises

Despite the harsh rhetoric, room for negotiation remains. The 21-day gap between the announcement and implementation of the additional 25% tariff was likely intended to create space for dialogue. 

Potential compromise areas include:

Gradual reduction of Indian tariffs on American agricultural products

Voluntary export restraints on certain Indian goods

Increased Indian purchases of American energy and defense equipment

Coordinated approach to Russian oil that addresses U.S. concerns

The Broader Implications

The crisis represents more than just a bilateral trade dispute—it highlights the fragility of international relationships in an era of economic nationalism. As the Carnegie Endowment warns Once domestic politics gets in the way good intentions and good ideas can fail and trust is hard to build harder to sustain and hardest of all to rebuild once it evaporates in a morass of politicization.

For India  the crisis has exposed the limitations of its cherished policy of multialignment—the attempt to maintain productive relationships with all countries while avoiding formal alliances. As Foreign Affairs notes. Trump's actions won't encourage a great revision in Indian foreign policy. Instead  New Delhi will survey the shifting geopolitical landscape and likely decide that what it needs is more productive relationships, not fewer.

Conclusion A Test of Maturity for the World's Largest Democracies

The U.S.-India tariff crisis represents more than a trade dispute—it is a test of strategic maturity for both nations. For the U.S. the question is whether short-term economic gains are worth undermining a strategic partnership decades in the making. For India, the challenge is to balance its legitimate economic interests with its broader geopolitical positioning.

The outcome will resonate far beyond bilateral relations. It will signal whether economic nationalism inevitably triumphs over strategic reasoning in contemporary international relations. It will test whether two democracies can disagree profoundly yet preserve a partnership based on shared long-term interests.

As Anuj Gupta in his silent Delhi shop awaits news of whether his American customers will return, his personal anxiety mirrors the broader uncertainty in what had become one of Asia's most important relationships. The buttons and zippers in his shop may seem insignificant in the grand scheme of global geopolitics. but they represent the countless human connections that are built through trade and threatened when it collapses.

In the words of the plaintive question posed by the New York Times. What exactly. does the U.S. want from India in 2025?  The answer to that question may determine not just the future of U.S. India relations. but the shape of Asian geopolitics for decades to come.