As the clock ticks down to the August 1 deadline imposed by the Trump administration, tensions are mounting between the United States and India over threatened US tariffs of up to 25% on Indian exports.
Despite months of bilateral negotiations focused on formulating a new trade agreement, both nations appear to be at a standstill, with Washington publicly calling for further talks and New Delhi bracing for a potential tariff shock to its economy.
US President Donald Trump reiterated on Tuesday that he is prepared to raise tariffs on Indian imports as high as 25% if the two countries cannot reach an agreement before the deadline. “They are going to pay 25%,” Trump stated to reporters, emphasising that while he considers India a friend, his administration is determined to extract greater market access for American goods in India.
On April 2 (Liberation Day), Trump had initially announced a 26% tariff on Indian goods, but implementation was immediately suspended as trade negotiations continued. The suspension was extended twice, with the current deadline set for August 1. No formal notice of tariff imposition has been sent to India yet, but officials in both capitals acknowledge the risk is real and growing by the hour.
Market Access: The US wants India to open key sectors like agriculture, dairy, and public procurement to American firms. India, with strong domestic protections, is hesitant to allow this, especially in politically sensitive areas.
Tariff Removal: India seeks lower US tariffs on steel, aluminium, and cars. However, no major progress has been made on this front.
Geopolitical Pressures: Talks are impacted by US concerns over India’s oil imports from Russia. Trump has already signed quick trade deals with Japan, the EU, and Vietnam, adding pressure on India.
Economic Impact: US tariff income has risen, but a Yale study says these duties may cost American families up to $2,700 per year.
Indian stock markets saw sharp swings last week. After early gains on hopes of a trade deal, the Nifty 50 fell nearly 400 points, breaking below 24,900. The drop was driven by rising fears that the US may impose aggressive new tariffs, causing panic selling. Export-oriented sectors such as Information Technology (IT), pharmaceuticals, and textiles—key contributors to India’s trade with the US—were closely watched by market participants amid rising uncertainty.
IT stocks, in particular, came under pressure, weighed down by muted quarterly earnings. Adding to the sector’s woes, recent remarks by the U.S. President Donald Trump have sent a strong signal to Big Tech firms such as Google and Microsoft, urging them to halt overseas hiring—including from major talent hubs like India. This development has further dampened investor sentiment around the future growth prospects of India’s IT industry.
On July 30, both Nifty 50 and Sensex opened flat, with investors cautious about possible 20%-25% US tariffs on Indian goods. Foreign investors have already pulled out over $15 billion from Indian stocks in 2025, as they rethink India’s short-term growth outlook.
As per Reuters, the Indian rupee is likely to weaken further due to continued foreign fund outflows and the risk of higher US tariffs. The rupee is expected to open below 87 per dollar, its lowest in four months, raising concerns for importers and companies with dollar payments. Traders say this could increase inflation and make it harder for the RBI to manage interest rates in the coming months.
Both sides have agreed to a sixth round of bilateral talks in New Delhi from August 25, signalling that a final deal before the August 1 deadline is unlikely. While Indian officials express confidence that the threatened tariffs would be a temporary measure to pressure progress, US officials say more negotiations are required to gauge India’s willingness to open its markets. Commerce Minister Piyush Goyal remains publicly optimistic about reaching an interim agreement, but has underscored that immigration and H-1B visa rules are not part of the current discussions.
Analysts say the situation is still in flux. Temporary tariffs are possible, but both sides are expected to keep talks going. A full trade deal could be aimed for by September or October, ahead of the next leaders' summit.
The US imported approximately $87.4 billion worth of goods from India in 2024, while India’s imports from the US stood at about $41.8 billion, resulting in a $45.7 billion trade deficit for the US. Major US imports from India include pharmaceuticals, electronics, and apparel.
As the August 1 deadline approaches, all eyes are on Washington and New Delhi for last-minute developments that could avoid a major escalation in trade tensions between two global economic powerhouses.
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