The United States Might Come Off Worse in Its Trade War with India

Appeared in SUBSTACK on October 2, 2025

https://anandanandalingam649613.substack.com/p/the-united-states-might-come-off

The trade war that the United States has thrusted on India reached a new high in August. What started as a 25% tariff on most Indian goods, escalated to 50% effective on August 27th, 2025, ostensibly because India was buying Russian oil. Some of the sectors in India expected to be hit hardest include textiles, garments, carpets, gems & jewelry, footwear and auto parts. Chemicals and agrochemicals from India will face the increased 50% tariff, posing competitiveness challenges. Steel, aluminum, autos, passenger vehicles, copper etc., have separate tariff regimes, sometimes exempted or handled differently. The tariffs on Indian pharmaceuticals were low but that is expected to change. Services are not supposed to be included in the latest Trump tariff regime.

India also has historically had tariffs on imports from multiple countries including the United States, i.e. the maximum that could be imposed under WTO commitments. The main foci of India’s tariff regimes have been on protecting domestic agriculture, mainly from the incursion of genetically modified seeds and produce, and several “nascent” industries, the latter with sunset clauses that expire at different time intervals. Many U.S. goods face duties in the range of 5–30% depending on product. Some of the U.S. sectors that are most exposed to Indian import tariffs are: Automobiles, motorcycles, luxury vehicles and bikes. Chemicals (including specialty chemicals) and solar cells have often been protected by high duties in India, but these change up or down depending on the companies that are exporting to India.

India’s nominal GDP in 2025 is approximately $4 trillion, making it the fourth-largest economy in the world. Exports of goods and services represent about 21.18% of India’s GDP as of 2024, according to the latest World Bank data; the percentage of India’s GDP made up by goods (merchandise) exports in 2025 is approximately 10.7%. The value of India’s only goods (merchandise) exports to the United States in FY 2024–25 was approximately $86.5 billion. As a percentage of India’s estimated 2025 GDP ($4 trillion), this is around 2.2%. The impact of the new Trump tariffs on India will be minimal though still troubling. Indian exporters estimate that the recent U.S. tariffs (50%) could affect ~55% of India’s merchandise exports to the U.S. (by value). GDP impacts for India are estimated at -0.5% to -0.6% if the tariffs remain in place over a year.

For certain Indian states/sectors (textiles, home furnishing, seafood, jewelry etc.), the impact is more acute in terms of job losses, cancelled orders, etc. According to the Washington Post, nearly every diamond sold in the world is first cut and polished in the city of Surat, in western Gujarat state. The U.S. is the single-largest buyer of these precious stones, purchasing roughly $5 billion in the last fiscal year, according to India’s Gem & Jewelry Export Promotion Council. The industry was already struggling as a result of Western sanctions on Russia, a key supplier of the rough diamonds that pass through the workshops of Surat before being displayed in American showrooms. Now, many fear the tariffs will make Indian diamonds prohibitively expensive for major U.S. jewelry companies and send demand plummeting. More than 2 million Indians work in units that supply 14 out of 15 cut diamonds globally. Already several small diamond polishing enterprises in Surat have closed down sending unemployment in Gujarat, Prime Minister Narendra Modi’s home state, soaring.

The tariffs could also hurt US jewelers. According to Rajesh Rokde, the chairman of the All-India Gems and Jewelry Domestic Council (GJC) “the US has around 70,000 jewelers who will also face a crisis if the jewelry becomes expensive”. Traders say that the need of the hour is to increase domestic demand for diamonds and diversify to new markets. The domestic gems and jewelry market was growing in India and expected to reach $130bn in the next two years, up from $85bn in 2024. The Indian jewelry industry is also looking for new markets, including Latin America and the Middle East. The bottom line is that diamonds will certainly become expensive in the United States. In addition, the Trump tariffs will provide a strong incentive for the Indian diamond, gem and jewelry industries to find new and emerging markets outside the United States.

Only a small minority might be impacted by diamond prices, but a vast majority in the U.S. will be in dire straits if the price of medicines started skyrocketing. In 2024, the United States imported over 828,000 metric tons of pharmaceutical products—a figure more than seven times higher than in 2000. The U.S. pharmaceutical industry seems to have surrendered domestic production in pursuit of cheaper foreign drug alternatives. The bulk of U.S. pharmaceutical imports come from just two countries: China and India. Together, they supply most U.S. generics and essential medicines. Accounting for both finished drugs and essential base Active Pharmaceutical Ingredients (APIs), China and India supply the U.S. with about 70-80% of the U.S.’s total generic drugs.
India supplies about half of all finished generic drugs but relies on China for 70–80% of its APIs. Notably, 40% of U.S. generic drugs have only one FDA-approved manufacturer, meaning even finished drug production is frequently a single-source vulnerability. In 2023, a single plant in India responsible for 50% of the U.S. cisplatin chemotherapy supply was shut down by the FDA after the claim of a string of safety violations. With no alternative domestic supplier, this resulted in nationwide cancer drug shortages, delaying treatment for thousands of patients. And it’s not just cisplatin. Many essential drugs—from antibiotics to sedatives—are produced in only one or two plants globally, often in India. The upshot of all this is that not only will drug prices in the U.S. skyrocket because of the tariffs imposed on India, in many cases, India can easily withhold several important drugs from the U.S. market to prove a point. Several patients who are critically ill in the U.S. might find themselves in life threatening situations.

Other significant sectors where India and the U.S. interact in trade are in airlines (both domestic and military) and automobiles, specifically auto-parts. In 2024, the United States imported $6.79 billion worth of auto parts from India. The U.S. forms 27% of the total exports of auto parts from India. India also exported about $8.7 billion of auto parts and automobiles to Mexico, a significant portion of this is redirected to the U.S. The tariffs that the U.S. has imposed on auto parts from India, directly and indirectly will certainly affect the Indian manufacturing market adversely. Overall, the U.S. imports $300 billion in auto parts and India only contributes about 2% of this amount. The impact of the tariffs on Indian auto parts will be much worse for India than the United States.

The Indian aviation market is a different case study. The cumulative annual growth rate of the Indian airline industry is projected to be 12% year-on-year for the next 10 years or so. Historically Indian airline companies had mostly purchased its equipment from Airbus Industries from Europe. However, recently, after relations between India and the U.S. strengthened, Air India decided to diversify and buy roughly half its planes from Boeing. In June 2023, Air India ordered 220 aircraft from Boeing (including the 787 Dreamliner) and 250 aircraft from Airbus, a landmark for the significance to the United States. With the Trump tariffs, this commercial relationship will be in some jeopardy. In fact, the Indian government which has some stake in Air India could retaliate and reverse the purchase from Boeing or even simply cancel it. The recent June 12th crash of the Boeing 787 on its flight from Ahmedabad to London could be used to rationalize this decision.

Most commentators have been highlighting the fact that the Trump tariffs on India will alienate the country and complicate the geopolitical situation. At a time when India was moving closer to the United States, the new tariffs might weaken this alliance and make the country rethink about its relationship with China and Russia. This geopolitical jujitsu will have a cost to American defense manufacturing in the long run. In 2024, India spent $86.1 billion on its defense budget, mostly on personnel. It spends about $8 billion on import of equipment and technology with about 36% from Russia,12% from France and 11% from the U.S. Over the past 10 years, imports of defense equipment and technology from Russia has declined steeply with a commensurate increase in imports from the United States. For example, in 2019, India had less than 5% of its defense spending in the U.S. and this more than doubled by 2024. Trump’s tariffs will put this in jeopardy. Any government worth its salt in India will slow down and may even reverse its defense spending in the U.S. creating a significant negative impact on the American defense industry. Looking at the details, much of India’s spending on American defense equipment focused on companies like Boeing on the verge of bankruptcy and which rely on these new purchases to stay afloat. So alienating India will have repercussions on American manufacturing as much as on geopolitical relations that everyone talks about.

It is also important to realize that there could be significant global repercussions for this impetuous act. Already the photo shots of Modi, the Indian Prime Minister cavorting with Putin of Russia and Xi of China have sent the foreign policy personnel in the United States into conniption! China is the largest trading partner of India, and the level of technology transfer between the two countries has been strong over the years. Foreign policy and national security experts as well as the Indian media tend to make a big deal out of the recent border clashes between the two countries. However, it is in each country’s long-term interest to be partners rather than enemies. Historically, India has always been supported by Russia, and the United States has been an unreliable ally at best. Worse, the U.S. has been a strong backer of Pakistan and even as I write this blog, has encouraged the Saudis to get together with Pakistan to form a mutual defense pact. The very strong tariff “punishment” meted out to India by the United States will simply accelerate the tightening of the geopolitical relations between India and both Russia and China.

One of the most important global negative impacts of the Trump tariffs on India will be in the loosening of the dollar as the world’s reserve currency. Already because of sanctions imposed by the U.S. on Russia and Iran, the trade between these countries and India is conducted in local currency. In the past year or so, Russia has wanted the Chinese Renminbi to be the legal tender rather than the Indian Rupee. BRICS countries, with China taking the lead, have already been talking about an alternative global reserve currency. The Trump tariffs will signal that the United States simply acts unilaterally and spuriously in global financial matters, not to mention using the currency as a leverage to pursue foreign policy aims. India will likely join China in seriously considering an alternate global currency for trade and commerce. They may not implement it soon, mostly concerned about what a nihilistic President Trump would do to retaliate, but the die may be cast.

Tigers in India were an endangered species just 20 years ago. By Indian commitment and ingenuity, there are now more tigers in India than when the British left. The U.S. needs to let the Indian tigers be; there is no telling what would happen if it is provoked unfairly and unnecessarily.