Tariffs, tensions and transformation: Navigating India’s strategies
Kalyani Shukla
- Posted: August 08, 2025
- Updated: 02:40 PM
The imposition of 25% tariffs by the United States on Indian goods reflects a complex intersection of trade protectionism, geopolitical realignments, and strategic coercion. At the forefront is Washington’s concern over its growing trade deficit with India, reported at $27.4 billion in 2024, which former President Donald Trump attributes to India’s “strenuous and obnoxious non-monetary trade barriers” and some of the highest tariffs globally. These grievances form the basis of Trump’s “reciprocal tariff” policy, which aims to counter what the US perceives as structural unfairness. Accompanying these demands are deeper expectations for India to revise economic policies - especially around agricultural and dairy imports - and expand purchases of US energy and defence products, despite India’s protection of its rural economy and strategic autonomy.
These tariffs must also be viewed in the broader geopolitical context, particularly India’s continued ties with Russia amid the Ukraine conflict. Washington is frustrated with India’s sustained purchase of Russian crude oil, claiming it “fuels Russia’s wartime economy,” and is pressuring India to align more closely with Western sanctions. Trump’s erratic negotiation tactics and personal political calculations have further strained bilateral ties. His pivot toward Pakistan and derogatory remarks about India’s economy and leadership represent a departure from past US administrations’ balancing strategies in South Asia. These developments reveal a volatile phase in US-India relations, where tariffs act as instruments of geopolitical leverage and diplomatic signalling.
Trump’s broader trade policy manoeuvres reflect a far-reaching ambition that transcends conventional economic disputes. At their core lies a systemic challenge to the post-WWII global economic order, viewed as outdated and detrimental to American interests. Referred to by aides as the “Trump Round,” this strategy seeks to dismantle multilateral frameworks and reconstruct them to prioritise US dominance. Central to this approach is “calibrated disruption” - a deliberate blend of unpredictability, threats, and reversals - designed less to resolve disputes than to destabilise norms and force concessions from allies and adversaries.
Trump’s trade policy rests on three pillars: narrowing trade and fiscal deficits through punitive tariffs, reindustrialising the American economy, and compelling partners to increase imports of US goods. His method exploits the global reliance on US markets and security guarantees to extract strategic and economic concessions. Notably, tariff threats against India are also used to influence its energy ties with Russia, targeting Moscow’s war economy without direct military involvement. This marks a shift from his earlier presidency, where friendliness toward Russia failed to yield results. Beyond trade, Trump’s agenda includes reinforcing dollar supremacy through selective adoption of cryptocurrencies, deregulating AI to secure technological dominance over China, and promoting nationalist industrial policy centred on reshoring and advanced manufacturing. These moves reflect an attempt to reshape American capitalism and global economic structures toward a more unilateral, transaction-driven US hegemony.
For India, US tariffs represent a pivotal moment with wide-ranging implications. While the overall macroeconomic impact may appear limited - GDP reduction projected at 0.2 to 0.4 percentage points - the sectoral effects are more acute. Labour-intensive industries such as textiles, gems and jewellery, auto components, and seafood face immediate disruption. While sectors like pharmaceuticals and IT services may be less affected, the loss of $33 billion in export value threatens employment and earnings. US consumers may also feel the impact, especially in sectors like mobile handsets and generic pharmaceuticals, where Indian imports remain indispensable to supply chains. .
India has responded with a calibrated blend of resilience, strategic defiance, and diplomatic engagement. Prime Minister Narendra Modi has reaffirmed the commitment to economic self-reliance, using the situation to advance the ‘Make in India’ initiative and boost domestic consumption. His rhetoric emphasises sovereignty and the protection of farmers, small industries, and youth employment. The government has retained restrictions on sensitive sectors such as dairy and agriculture, citing food security and cultural values.
On the foreign policy front, India has resisted US pressure to cut ties with Russia, continuing discounted crude oil imports as an economic necessity. Officials have asserted that energy and defence relations with Russia are not subject to external influence. India’s foreign policy is framed as independent and guided by national interest, not coercion. Simultaneously, India is diversifying trade partnerships with the EU, ASEAN, the Middle East, and the UK to reduce dependency on the US. While quietly considering reciprocal actions, like reintroducing a digital tax on US tech giants, India maintains its image as a stable trade partner. New Delhi’s response seeks to safeguard long-term strategic interests without capitulating to short-term pressure tactics.
At the policy level, India’s leadership blends economic nationalism with strategic noncompliance. PM Modi and Commerce Minister Piyush Goyal have underscored the non-negotiability of sovereignty in areas like food security, digital trade, and defence procurement. The refusal to open sensitive domestic markets reflects both political pragmatism and electoral calculus. While exploring countermeasures like digital service taxes and adjusted customs duties, India aims to avoid escalation, preferring dialogue over confrontation. This approach demonstrates a mature foreign policy calculus that seeks to preserve long-term bilateral relations while protecting core national interests.
Geopolitically, the tariffs illuminate a fundamental shift in US foreign policy, where trade disputes are now linked to broader strategic goals. The willingness to compromise longstanding strategic engagement with India to gain leverage over Moscow marks a departure from previous US administrations. India’s firm stance in defending its ties with Russia, including its use of alternative payment systems like the ‘rupee-ruble mechanism’, signals a commitment to multipolarity and a sanctions-resistant economic architecture. However, this positioning also invites sustained external pressure, especially as the global order becomes increasingly polarised and transactional. India’s ability to maintain strategic autonomy in such a landscape will depend on the resilience of its economy and the diversification of its trade partnerships.
To mitigate future vulnerabilities and reposition itself within an evolving global trade and technology order, India must accelerate internal reforms. These tariffs expose not only the fragility of dependence on specific export markets but also the urgency of enhancing domestic value addition, industrial competitiveness, and technological capabilities. A status quo approach will leave India exposed to external shocks in a world of rising protectionism. Policymakers must enhance productivity, streamline regulatory frameworks, invest in digital and physical infrastructure, and foster innovation. Such efforts can transform external pressure into a catalyst for overdue economic transformation, positioning India as a more self-reliant, globally competitive power.
The US-India tariff conflict is not merely a bilateral dispute but a strategic inflection point. It forces India to confront difficult questions: Can it rely on historical diplomatic goodwill in an increasingly transactional world? How can it safeguard its strategic autonomy while remaining integrated with global markets? And, is its economy agile and competitive enough to withstand future coercion? While India’s measured response has created space for diplomacy, the long-term imperative is structural transformation that enhances global bargaining power through deeper reforms, diversified alliances, and resilient supply chains. The current standoff may well be a catalyst—India must decide whether it will merely react to global shifts or strategically shape its role within them.
(The writer is a researcher interested in topics including climate governance, geopolitics, history and society. Views expressed are her personal.)