From Mission 500 to 50% Tariffs: Navigating the Emerging Cold War in India-US Trade Relations

Civil Services Forum
3 hours ago
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The Politics of Tariffs and Trade Wars:

An Economic Analysis of India US-Trade Relations

In a world increasingly characterized by national interdependence, trade has become both an economic indispensability and a political prerequisite. Among the various instruments of trade policy, tariffs remain the oldest and most contentious one. More than just a tax on imports to increase government revenue and protect domestic industries, tariffs have been transitioned as a political tool in an interconnected global economy. But often increased prices of foreign goods demotivate their domestic consumption and disrupt the supply chain. When these disruptions escalate, they evolve as trade wars of international concern, reshaping global alliances and trade flows.

A strategic partnership under pressure

The economic relationship between the United States and India has recently entered a profound period of uncertainty, after being valued at an estimated $212.3 billion in 2024. Although both nations had set long-term ambitions for Bilateral Trade Agreements (BTA), aiming for $500 billion by 2030, these goals are being undermined by short-term, self-interested policies. Along with that, punitive tariffs imposed by both nations underscore their divergent economic strategies and conflict of geopolitical interest. A turning point in the strategic partnership between India and the US came in 2025 when the US tariff on Indian commodities escalated, beginning with a 25% levy; the duty was further doubled to 50% on August 27. The US justified this action as their response to India’s continued purchase of Russian oil, further signaling US frustration with India’s protected agriculture and dairy markets. In addition to such geopolitical concerns, there lie deeper economic issues, particularly the US trade deficit with India, which reached $45.8 billion in 2024.

Impact on India’s export Sectors

The economic repercussions for India have been severe, particularly on its labor-intensive industries. Industries such as apparel, jewelry, gems, and leather, which depend on the US market for nearly 30–60% of their exports, have faced immense challenges. As per the study conducted by the Global Trade Research Initiative (GTRI), there has been a noticeable downfall in exports from India to the US, falling from 8.8 billion in May to 6.86 billion in August.

This contraction in the export market has greater consequences, from large-scale job losses, including 150,000 layoffs in the Tirippur knitwear hub, to two million job losses in the shrimp industry. The repercussions of unexpected tariff escalation are ranging far beyond the economic domain, making it a socio-political challenge.

India’s Response and the road ahead

To tackle the issue, India has adopted a multifaceted approach of negotiation and resistance. India has expressed its deep disdain for unjustifiable tariff escalation and has taken a diplomatic stand by filing a formal complaint to the World Trade Organization (WTO). The resumption of in-person trade talks on September 16, 2025, represents a strategic approach, reducing the issue from a public trade war to a closed-door negotiation. From a broader perspective, the India–US tariff dispute highlights the global shift towards economic nationalism. Although immediate negotiations and reconciliations may bring short-term gains, structural disagreements over market access are likely to resurface, leading to similar issues. The path ahead depends on transforming current trade conflicts into opportunities for long-term economic cooperation.