India needs to make rational choices in tariff standoff with the US

The imposition of an additional 25 per cent tariff by the United States (US) on imports from India, on top of the 25 per cent reciprocal tariff, has placed India in a difficult position. White House Trade Adviser Peter Navarro argued last week that the additional tariff was on account of national security concerns because of India’s continued import of Russian crude oil. The broader thinking, which US President Donald Trump also underlined, is that India’s import of Russian oil is helping it fund the Ukraine war. In that case, the US should have first targeted China, which is not only buying bigger quantities of oil and gas from Russia but is also supporting it through various other means. But the US has decided not to do so, perhaps fearing retaliation. Mr Trump and Russian President Vladimir Putin are expected to meet later this week to discuss the Ukraine war. India has welcomed the move, although it is unclear whether a resolution of some sort will remove the tariff penalty threat. Prime Minister Narendra Modi also had a detailed conversation with Mr Putin last week.

 

While the near-term outlook is uncertain, India must begin preparing to confront the unfortunate reality it now faces. It simply cannot let go of its biggest export market. In 2024-25, India exported goods worth $86.5 billion to the US and ran a trade surplus of over $41 billion. While electronics and pharma products are exempt from these prohibitive tariffs, it is only a matter of time before those are also brought into some form of tariff net. India exports many low-margin goods to the US, which would be completely priced out. As was reported by this newspaper last week, for example, several global brands in the apparel business have asked their Indian suppliers to hold orders till there is more clarity on tariffs. India exported textile and apparel worth about $10.8 billion to the US in 2024. Other sectors will also be impacted, and there will be a serious risk of large-scale job losses.Although Mr Trump has ruled out any negotiation on this front for now, India must continue to engage with the US. There is no doubt that India has the right to determine the nature of its engagement with any country, but it must also be prepared to handle unusual situations to ensure that its interests are protected. It is worth noting that India has a deep and long-standing relationship with Russia, which cannot be compromised. However, to deal with the current situation, India can shift its oil imports away from Russia in tranches, which is, anyway, a recent phenomenon. India started importing Russian oil because it was available at a discount owing to Western sanctions. But the discount has sharply narrowed. An analysis by this newspaper showed that India saved only about $15 billion between January 2022 and June 2025.

 

A research note by Nomura last week highlighted that the discount was only about $2.2 per barrel in the current year. If India shifts its imports, the additional cost will be only about $1.5 billion annually. However, this shift could push up global oil prices, though the increase is likely to be limited due to factors such as available capacity and overall global demand. Since India is running a modest current-account deficit (CAD), the shift should be manageable. In fact, the near-closure of the US market could have a bigger impact on the CAD, along with implications for growth and employment. Thus, it makes clear sense for India not to get locked into an antagonistic position with the US. It must decide rationally.