Trump imposes a 25% tariff and penalty on exports from India

US President Donald Trump placed a 25% duty on Indian goods along with an extra penalty just days before the deadline of August 1. Fears of economic loss and trade disruption have been rekindled by the action, particularly as the figure is consistent with the 26% tax that was initially announced on April 2. In addition to pushing both countries to quicken their work toward a bilateral trade agreement, industry leaders and economists are now cautioning of a possible hit to GDP and a knock to India’s export competitiveness.

Trump reaffirmed his complaints about India’s trade policies in a post on Truth Social, pointing to its “high tariffs” and ongoing purchases of Russian military equipment and oil. Despite calling India a “friend,” he insisted that severe trade measures would begin on August 1. Concerns regarding the effects of such levies had already been raised by economic experts. They calculated that a 26% tariff might result in a $30 billion drop in India’s GDP, or around 0.7% of the $4.3 trillion GDP that the International Monetary Fund (IMF) had forecast for the end of 2025. The economic consequences might be worse now that a penalty has been added.

Brokerages including Macquarie and Goldman Sachs have also issued cautionary notes. Macquarie estimated that a blanket tariff exceeding 20% could reduce GDP by over 50 basis points, while Goldman Sachs projected currency pressure, expecting the rupee to weaken against the US dollar. The RBI is unlikely to intervene heavily, the firm noted.

India has been negotiating a BTA with the US since early 2025. However, according to sources, certain US demands are perceived to be against India’s national interest, and the government has so far resisted agreeing to them. A US delegation is expected in India in late August for the sixth round of talks. Officials are optimistic that negotiations could be concluded by September or October this year.

US remains a vital export market for Indian goods and services. Industry leaders are advocating for a long-term, stable trade framework rather than a rushed pact. As Commerce and Industry Minister Piyush Goyal has reiterated, India will prioritise national interest over self-imposed deadlines.

Despite these trade challenges, India’s goods exports to the US grew to $25.52 billion in April and May 2025, up from $20.89 billion in the corresponding period last fiscal year.