Recent developments have seen the United States impose an additional 50 per cent tariff on Indian goods from August 27, 2025. This is in addition to the existing 2.5 per cent baseline duty. Half of this increase targets India’s oil trade with Russia, justified under Section 232 of the US Trade Expansion Act of 1962, which allows tariffs on national security grounds. The move affects Indian exporters, especially in garments, leather, and gems and jewellery sectors. This article outlines the key aspects of these tariffs and their broader implications.
Background of US Tariff Increase
The US raised tariffs citing national security concerns. Section 232 allows such measures but exempts sectors like pharmaceuticals, semiconductors, electronics, petroleum products, and some auto parts. The 50 per cent hike mainly targets Indian exports linked to Russian oil trade. This has led to an immediate increase in import duties on vulnerable sectors to over 60 per cent.
Impact on Indian Export Sectors
Garments, leather goods, and gems and jewellery face the harshest blow. These industries rely heavily on the US market, with some having up to 50 per cent of their output exported there. As a result, many producers risk being priced out. Indian apparel had gained ground in the US, competing with Vietnam and Bangladesh. Major US retailers stocked Indian textiles and garments, but new tariffs threaten this presence.
Short-term Export Trends
Before the tariffs took effect, US buyers accelerated orders to avoid higher costs, causing a temporary export surge. However, advance orders are now declining rapidly. The initial boost is unlikely to offset long-term losses. Many exporters face shrinking demand as US importers seek cheaper alternatives or reroute supply chains.
Consequences for the US Economy
The tariffs also harm US consumers and producers. Inflation rises as prices of staples like eggs, meat, and chicken increase due to import restrictions. US automakers report heavy losses, partly due to tariffs on imports from China and Canada. Currency depreciation and supply chain shifts abroad reduce the tariffs’ intended effect. The US budget deficit and debt levels are expected to worsen despite tariff revenues.
Geopolitical and Ideological Motivations
These tariffs reflect broader US political and ideological strategies. They are influenced by protectionist advisors and aim to challenge global trade norms dominated by the WTO. The US also uses tariffs as a geopolitical tool against China and Russia, with India caught in the crossfire. Political theatre and national assertion drive these policies more than pure economic logic.
India’s Strategic Response
India must prioritise support for MSMEs affected by tariffs through tax relief and other measures. Diversifying export markets towards the EU, UK, and China is crucial. Negotiating sector-specific trade agreements with the US can provide targeted protection. Diplomatic efforts to manage US political sensitivities may help restore goodwill. India’s service exports to the US remain unaffected and should be nurtured.
Long-term Outlook
India should avoid reactive panic and instead hedge against US economic nationalism. Joining multilateral agreements hastily could weaken bargaining power. Strategic diversification and shrewd negotiation will help India navigate uncertainties. The ongoing contradictions in US policy may eventually ease, but preparation is key.
Questions for UPSC:
- Point out the economic and political factors influencing the use of tariffs under Section 232 of the US Trade Expansion Act of 1962.
- Critically analyse the impact of protectionist trade policies on global supply chains and international relations with suitable examples.
- Estimate the challenges and opportunities for India in diversifying its export markets amid rising global trade tensions.
- What are the implications of trade tariffs on domestic industries and consumers? How can governments balance protectionism with free trade objectives?
