President Donald Trump said he would impose a 25% tariff on India’s exports to the U.S. starting August 1, and threatened an additional penalty over the country’s energy purchases from Russia.

Trump on July 30 said he made the decision because India has tariffs that are “among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country.”

“Also, they have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE,” he posted on social media. “INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A PENALTY FOR THE ABOVE, STARTING ON AUGUST FIRST.”

Trump’s announcement marks his latest act of brinkmanship ahead of his August 1 deadline for new import taxes to begin on exports from dozens of trading partners. 

The levies dash New Delhi’s hopes of preferential treatment over its Asian peers, who have secured tariffs ranging from 15% to 20%. India had been among the first to engage Washington in talks, following Prime Minister Narendra Modi’s high-profile White House visit in February.

India and the U.S. had already finalized terms of reference for a bilateral trade deal following U.S. Vice President JD Vance’s meeting with Modi in New Delhi in April, with both sides committing to a fall deadline. Before Trump’s July 30 pronouncement, officials in New Delhi had said they would continue negotiating with the U.S. on a bilateral trade deal by this fall.

India remains committed to a bilateral deal that’s “fair, balanced and mutually beneficial,” the government said in a statement. It highlighted the need to protect farmers, entrepreneurs and small businesses, adding that “the government will take all steps necessary to secure our national interest,” as it had done in other deals, including a recently concluded free trade agreement with the U.K. 

India’s rupee slumped and stock futures declined after Trump’s announcement. The Nifty 50 futures traded at the Gujarat International Finance Tec-City erased their gains to decline as much as 0.5%, while the rupee was down 0.8% to 87.87 to a dollar in offshore trading. It fell to a five-month low in onshore trading on the tariff threat.

“While the trade talks appeared to have broken between the two nations, leading to the U.S. penalizing India, we think that the trade saga and deal haggling isn’t necessarily over,” said Madhavi Arora, an economist at Emkay Global Financial Services Ltd. “There is also a global geopolitical angle to these trade talks beyond just the pure economic angle.”

Shifting Stance

For much of this year, the Modi government had adopted a conciliatory approach toward Trump, revamping India’s tariff structure and offering several trade and immigration concessions to the U.S. Trump’s advisers had also signaled for months that a trade deal with India was in the cards.

The tone appeared to shift in recent weeks, though, with New Delhi toughening its stance as negotiations hit roadblocks over contentious issues such as agriculture.

Trump also threatened “secondary sanctions” on nations buying oil from Russia, which had the potential to hit China and India. Washington and other allies of Ukraine view such oil purchases as a form of tacit support for Russia, helping to bolster its economy and undercut sanctions.    

Trump’s move could further strain already tense relations between the U.S. and India. The president has repeatedly insisted he used trade to broker a truce that ended a four-day armed conflict between India and Pakistan in May, an assertion vehemently denied by Modi and other top officials in New Delhi.

It also risks undermining longstanding U.S. efforts under previous administrations, including Trump’s first, of cultivating India as a strategic counterweight to China.

India’s main opposition party said Trump’s announcement showed that close ties between Modi and the U.S. leader hadn’t paid off.

President Trump has slapped a tariff of 25% plus penalty on imports from India. All that taarif between him and Howdy Modi has meant little.
 
 Mr. Modi thought that if he kept quiet on the insults that the U.S. President has hurled on India -- the 30 claims of stopping Op Sindoor,…

— Jairam Ramesh (@Jairam_Ramesh) July 30, 2025

Trump’s threat of additional penalties on India comes a day after he shortened Russia’s deadline to reach a truce with Ukraine to 10 days, raising the prospect of penalties on buyers of Moscow’s oil taking effect sooner than expected. 

India maintains strong economic and military ties with Russia, and has avoided criticizing President Vladimir Putin for invading its neighbor. India became a major importer of Russian oil after the invasion of Ukraine in early 2022, buying more than a third of its overall purchases from Russia this year, according to data from Kpler. India also imports about 36% of its weapons from Russia. 

That energy reliance means “shifting to new suppliers can have a negative impact on India’s current account and inflation expectations, as well as weigh on sentiment toward local markets,” said Brendan McKenna, an emerging markets economist & forex strategist at Wells Fargo & Co.

The U.S. is India’s largest trading partner and top export market, with two-way trade reaching $128 billion in 2024. New Delhi had attempted — but failed — to secure a limited trade deal with Washington during Trump’s first term.

Trump has labeled India a “tariff king” and consistently criticized it for its trade barriers. According to 2023 World Trade Organization data, India’s simple average tariff rate was five times that of the U.S. and the highest among major economies.      

“It’s very asymmetric situation. I think that we’re hopeful that India will open up its markets us,” White House National Economic Council Chairman Kevin Hassett said July 30 on CNBC. Like deals with the European Union and Japan, the U.S. wants access to India’s markets for its businesses and farmers, he said. 

“And if we could do that in India, that would be an absolute game changer for the global economy, because it’s such a large and growing economy,” he said.

Among the sticking points in negotiations was the U.S.’s demand to export genetically modified agricultural crops, which India was unwilling to do, citing risks to its farmers. New Delhi had been pushing for exemptions from industry-specific tariffs, especially forthcoming measures on pharmaceuticals. 

India’s 25% tariff rate is higher than the 20% secured by Vietnam, 19% for Indonesia and 15% for Japan, putting India at a competitive disadvantage.

“India’s export prospects and investment appeal would be damaged, even more so should sectoral exemptions for smartphones and other electronics be phased out and each country’s respective baseline tariff applied,” said Alexandra Hermann, economist at Oxford Economics in London.