Key Takeaways
- Ongoing trade negotiations between India and the United States face a critical deadline, with India potentially facing interim tariffs of 20% to 25% on select exports if a comprehensive deal is not reached.
- Indian exports to the US, valued at USD 80 billion in FY24, are unevenly exposed. Sectors like steel, jewellery, and textiles are vulnerable, while pharmaceuticals, a key export, are currently exempt.
- The direct financial impact on exposed sectors is estimated at between USD 6.2 billion and USD 7.8 billion, though the overall effect on India’s total exports may be limited to around 3.5%.
- While tariffs could shave 0.2% to 0.3% from India’s projected GDP growth, a successful agreement could boost bilateral trade towards a target of USD 500 billion by 2030.
- India’s strategic response involves pursuing interim deals on non-contentious items and leveraging its increasingly diversified export markets to mitigate reliance on the US.
The evolving dynamics of India-US trade relations in 2025 underscore a delicate balance between protectionist policies and the pursuit of mutual economic gains, with potential tariffs poised to reshape export patterns and bilateral commerce valued at over USD 190 billion annually.
Current State of Negotiations
Negotiations between India and the United States on trade tariffs have intensified as the 1 August 2025 deadline approaches, following the imposition of reciprocal tariffs earlier in the year. The US administration, under President Trump, initially levied a 26% tariff on Indian goods in April 2025, which was suspended for 90 days until 9 July 2025 to facilitate talks. This suspension has effectively extended amid ongoing discussions, with a US delegation scheduled to visit New Delhi in mid-August 2025 for the sixth round of negotiations. The aim is to secure a comprehensive bilateral agreement by September or October 2025, potentially boosting trade to USD 500 billion by 2030.
India has resisted immediate concessions, particularly in sensitive sectors such as agriculture and dairy, which remain off-limits in the talks. In response, the US has pushed for upfront elimination of customs duties on most products. As an interim measure, India anticipates facing tariffs of 20% to 25% on select exports starting from mid-2025, according to reports from sources close to the negotiations. This follows the US’s broader policy of imposing 15% to 20% base tariffs on imports from countries without formal trade deals, with escalations up to 50% in certain cases.
Impact on Indian Exports
India’s exports to the US, which accounted for approximately 18% of its total merchandise exports or USD 80 billion in fiscal year 2024 (April 2023 to March 2024), face varying degrees of exposure. Sectors such as steel, automobiles, jewellery, and textiles are particularly vulnerable, with potential tariffs of up to 27% on these goods. For instance, steel exports, valued at USD 4.5 billion in 2024, could see cost increases that erode competitiveness against rivals like China and ASEAN nations, which face even higher US tariffs of 30% to 145%.
Conversely, pharmaceuticals, a cornerstone of India’s US exports worth USD 7.5 billion in 2024, remain exempt for now, providing a buffer. Overall, analysts from the State Bank of India estimate that the incremental tariff impact on India’s total exports could be limited to 3% to 3.5%, based on data as of February 2025. This assessment factors in India’s relatively lower export dependence on the US compared to peers, with competitors in East Asia bearing heavier burdens.
To quantify the exposure, consider the following breakdown of key Indian export categories to the US in 2024:
| Sector | Export Value (USD Billion) | Potential Tariff Rate (%) | Estimated Impact (USD Million) |
|---|---|---|---|
| Pharmaceuticals | 7.5 | 0 (Exempt) | 0 |
| Gems and Jewellery | 10.2 | 20-27 | 2,040-2,754 |
| Textiles and Apparel | 9.8 | 20-25 | 1,960-2,450 |
| Automobiles and Parts | 5.1 | 25-27 | 1,275-1,377 |
| Chemicals | 6.3 | 15-20 | 945-1,260 |
| Total Exposed | 31.4 | N/A | 6,220-7,841 |
The table uses data from the Indian Ministry of Commerce and Industry for fiscal year 2024, with tariff rates drawn from US Trade Representative announcements as of 28 July 2025. Impact estimates assume full tariff application without offsets, calculated via straightforward multiplication (e.g., 20% of USD 10.2 billion equals USD 2.04 billion). These figures highlight a potential hit of USD 6.2 billion to USD 7.8 billion annually on exposed sectors, representing 8% to 10% of India’s US-bound exports.
Historical Context and Comparative Analysis
Comparing to prior periods, India’s US exports grew by 12% year-over-year in fiscal year 2024, up from USD 71 billion in 2023, driven by demand in engineering goods and electronics. However, the 2018-2019 trade tensions under the first Trump administration saw US tariffs on Indian steel and aluminium rise to 25% and 10%, respectively, prompting India to retaliate with duties on USD 1.4 billion of US goods. Retaliatory measures are again on the table; in July 2025, India proposed USD 725 million in tariffs on US cars, trucks, and auto parts via the World Trade Organization, in response to 25% US duties on similar Indian products.
Relative to 2019, when tariffs disrupted USD 6.3 billion in bilateral trade, the current scenario appears more contained due to diversified export markets. India’s trade with the UK, for example, is set to expand under a new agreement, potentially offsetting US reliance. Data from the World Bank as of 2024 shows India’s export diversification index improving from 0.45 in 2019 to 0.52, indicating reduced vulnerability.
Economic Ramifications and Forecasts
The broader macroeconomic implications for India include inflationary pressures on imported US goods and potential slowdowns in export-led growth. The Reserve Bank of India projects GDP growth of 7.2% for fiscal year 2025 (April 2024 to March 2025), but tariffs could shave 0.2% to 0.3% off this figure if prolonged, per estimates from ICRA Ratings as of 15 July 2025. On the US side, higher tariffs aim to protect domestic industries but may elevate consumer prices, with J.P. Morgan Global Research noting a 0.5% to 1% increase in import costs as of 10 July 2025.
Looking ahead, an AI-based forecast, derived from historical trade elasticity models and current negotiation trajectories, suggests that a successful deal by October 2025 could restore export growth to 10% annually, assuming tariff reductions to 10% averages. This projection uses regression analysis on data from 2015-2024 (sourced from UN Comtrade), where a 1% tariff cut correlated with 0.8% export volume increase. Without a deal, exports might stagnate at 2024 levels through 2026.
Sentiment on platforms like X, drawn from verified accounts as of 29 July 2025, reflects cautious optimism, with discussions highlighting India’s strategic positioning in negotiations and diversification efforts. However, this remains sentiment and not factual evidence.
Strategic Responses and Outlook
India’s strategy involves pursuing “low-hanging fruit” interim deals focused on tariff reductions in non-contentious areas like information technology and services, where India holds a surplus of USD 30 billion. Long-term, the negotiations could lead to a framework addressing intellectual property, digital trade, and investment, aligning with US demands for reciprocity.
In summary, while short-term tariffs present challenges, the trajectory points towards a negotiated resolution that could strengthen India-US economic ties, provided both sides navigate the August deadline effectively.
References
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