US Tariff Imposition: Strategic Diplomacy or Economic Coercion?

Tariff refers to the imposition of tax by the receiving country on the goods & services being exported by any other country. Such tariffs are imposed for the purpose of raising revenues for the government, protecting domestic industries or even as a strategic diplomacy move. In recent months, this tool has taken center stage in U.S.–India relations. President Donald Trump first raised import duties on Indian goods to 25%, branding it a “reciprocal tax” to counter what he described as unfair trade practices. However, the move quickly escalated beyond reciprocity. A second executive order imposed an additional 25% penalty, explicitly tied to India’s continued oil trade with Russia.

If implemented, these measures would subject Indian exports to a 50% duty from August 27, 2025, unless a compromise is reached. What began as a claim of balancing trade has, in effect, turned into a form of economic coercion placing unprecedented pressure on India to open its markets and realign its policies. This marks one of the most serious trade disputes between the two countries in decades.

Reasons Behind the Implementation of Tariffs

On 2nd April, 2025 the US announced a 26% Tariff on Indian Goods as “Reciprocal” meaning the US adjusted and revised Tariff rates for various countries dependent on the market availability of US Products in such other countries and the tariffs imposed on the US exports by such countries. By taking the above two factors into consideration, the United States in reciprocal revised its own tariff rates accordingly as to give a befitting reply to all such nations. India was among these nations and the import duty on Indian products rised upto 26 percent which was later changed to 25%. This duty rate was deferred to be taken effect at a later date as there were trade negotiations going on between the two countries. The main point of discussion for the US in these trade negotiations were for the market access for American farm and dairy products in the Indian Market. But even after 5 rounds of discussion till early July, no agreement was reached upon. Then on 31st July, Trump issued an Executive Order that formally updated reciprocal tariff rates and the new tariff rate for India set at 25% which took effect on 7th August, 2025. While the Tariff rate for India went to the rise despite India being a strong ally to the United States all these years, the Tariff rates for all competing countries like China, Bangladesh, Vietnam and other countries went significantly lower; a deliberate decision taken to harm the Indian market as no one would prefer a much more costly alternative than the cheaper ones available from other countries directly harming India’s exporters and manufacturers.

Just a week later Trump signed another Executive Order to levy a penalty of further 25% of Tariffs on Indian goods if India immediately doesn’t cease its oil supply trade from Russia as it believes that the proceeds from the oil trade aids Russia in their war with Ukraine. Then the US Government again initiated the trade talk in order to put pressure onto India indicating that if the Indian Government wants to reduce the burden of Tariffs to a reasonable rate, they must allow the American farm and Dairy products into Indian market. In strict response to this, the Indian Prime Minister ‘Narendra Modi’ took a stand for the Indian farmers and stated that India would “never compromise on the interests” of its farmers, dairy producers and fishermen, even if it meant “paying a heavy price” himself.

Now on 25th August, another trade discussion round between India & US was pending which was canceled and Trump stated that no other trade rounds or discussions will be done with India till present issues are resolved. The 50% tariffs imposition against India is to took place from 27th August and the Indian government is speedily working on ways to provide some reliefs to the exporters and manufacturers who’ll be a victim to such trade policy.

Impact of U.S. Tariffs on India

The recent U.S. tariffs have come as a big setback for Indian exporters. Almost half of what India sells to America every year has suddenly become costlier because of an extra 25% duty. For businesses that depend on the U.S. market, this feels like the rug has been pulled out from under their feet.

What makes matters worse is that competitors like Vietnam, Bangladesh, and China continue to enjoy much lower tariff rates. That leaves Indian products struggling to compete, especially in high-value categories where margins are already tight.

Sectors Affected:

Industries such as textiles, clothing, seafood, chemicals, jewelry, and machinery are among the hardest hit, with duties soaring to over 50% in many cases. For example, garments and towels that once held a strong share in the U.S. market are now so heavily taxed that buyers may simply look elsewhere. On the other hand, sectors like pharmaceuticals and electronics have been spared for now, though experts warn this exemption may not last if tensions continue.

Labour-intensive sectors such as jewellery, leather, footwear, chemicals, and apparel are among the hardest hit, with U.S. tariffs expected to reduce their exports by nearly 90%.

The impact isn’t just one-sided. American companies that import from India are also facing higher costs, which could eventually trickle down to consumers in the form of steeper prices. Even in the U.S., some state leaders and economists are raising concerns that these tariffs could end up hurting jobs at home.

For India, though, the challenge is bigger. If these measures drag on, growth may slow, inflation could creep up, and exporters—especially smaller ones—may be forced to cut jobs or shut shop unless they find new markets quickly.

India’s Strategy Moving Forward

Following are some of the steps taken by Indian government to improve the situation:

• Finding New Markets: India signed a big free trade agreement with the UK in 2025 and is pushing for stronger trade within BRICS nations (Brazil, Russia, China, South Africa). Indian exporters are exploring alternative markets such as Africa, where tariffs are as low as 10%, to offset the impact of the 50% U.S. tariffs. Some companies are also considering routing their merchandise to American clients through their plants in other countries to alleviate the tariff burden.

• Talks with the U.S: While the standoff continues, India is still keeping the door open. A U.S. trade delegation is expected to visit New Delhi soon.

• Standing Firm: India has made it clear that it will not compromise on protecting farmers or bow down to U.S. pressure on oil imports.

• Closer Ties with Russia and China – With Russia offering cheap oil and China openly criticizing U.S. tariffs, India is strengthening its economic partnerships with these countries.

• Duty Exemptions: The Government is taking steps to ease the pain for exporters by extending duty benefits to affected industries and products. For instance, duty-free import of cotton has been allowed until December 2025. This measure aims to enhance cost competitiveness by reducing the cost differential.

• Relaxation in Duty exemption Schemes: The chemical industry has been significantly affected by the tariffs. To provide relief, the Government has relaxed duty exemption schemes such as the Advance Authorisation Scheme, under which the export obligation period for imported products has been extended from 6 months to 18 months.

Conclusion

The coming weeks will decide how this tariff clash shapes India–U.S. relations. Washington wants India to bend, especially on issues like Russian oil, while India has made it clear that its farmers, sovereignty, and economic independence are non-negotiable. Talks planned for late August have already collapsed, and with higher duties kicking in, the pressure on exporters is only going to increase. Many Indian businesses are already looking for new buyers in Europe, the Middle East, and Asia, while the government is expected to step in with relief measures and push harder on its “Make in India” program to support local industries.

For the U.S., Trump’s tariff gamble may please his hardline supporters, but it risks damaging years of carefully built trust with India. Even within America, there are concerns that this approach could push India closer to Russia and China, changing the balance of power in Asia.

In the bigger picture, these tariffs show a worrying trend where trade is being used as a weapon instead of a bridge for diplomacy. For Indian businesses, farmers, and workers, the next few months will be critical. Whether this dispute ends in compromise or turns into a prolonged trade war, one thing is certain: 2025 will be remembered as a turning point in the U.S.–India partnership, with consequences reaching far beyond trade numbers.