Washington/ Delhi – Bilateral trade between the United States and India stood at $129 billion in 2024 according to the Office of the US Trade Representative, but the sharpest escalation in tariffs in years now threatens to undermine one of the fastest-growing economic relationships in the Indo-Pacific.

The Trump administration has imposed cumulative duties of up to 50% on Indian exports, a 25% “reciprocal” tariff followed by a 25% penalty linked to New Delhi’s continued purchases of Russian oil. These are among the steepest measures the US has taken against any trading partner, intensifying friction just as both sides had signaled intent to resume negotiations.

Trade Strains Deepen

India accounts for a $45.8 billion US trade deficit, according to Census Bureau data, making it one of Washington’s largest imbalances after China, Mexico, and Germany. The new tariffs, covering a wide range of manufactured goods, pharmaceuticals, and textiles, have disrupted supply chains and raised costs for American companies reliant on Indian inputs.

New Delhi has responded by accelerating negotiations with the European Union, aiming to finalize large parts of a free trade agreement by the end of 2025. Officials describe the EU talks as a hedge against over-reliance on the US market.

Despite repeated claims of partnership, analysts argue the tariff dispute underscores the fragility of the economic relationship, with structural disagreements on market access, energy policy, and subsidies still unresolved.

Political Ripples in India

The tariff shock has carried domestic political consequences. Prime Minister Narendra Modi has used public rallies to frame the dispute as a matter of sovereignty, urging citizens to prioritize “Made in India” goods.

The shift toward economic nationalism comes amid mounting criticism of Modi’s handling of Pakistan relations, accusations that foreign interference has worsened unrest in Manipur, and sustained scrutiny over rights concerns in Kashmir and among minority groups. Together, these pressures have narrowed his political space to maneuver on the external front.

Legal Uncertainty in the US

The tariff policy itself faces an uncertain future. The US Supreme Court has fast-tracked hearings on whether President Trump exceeded his authority by invoking the 1977 International Emergency Economic Powers Act (IEEPA) to justify the duties.

Treasury officials estimate Washington may have to refund up to half of tariff revenues collected if the Court strikes down the measures. A ruling expected in November could reshape not only US-India trade but also broader American tariff strategies against China, the EU, and South Korea.

Strategic Realignments

While Washington pressures New Delhi to cut energy ties with Moscow, India has deepened engagement with Russia and China. Modi’s recent visit to Beijing for a summit hosted by Xi Jinping, where he also held discussions with Vladimir Putin, signals a bid to maintain strategic autonomy despite US pressure.

These moves complicate cooperation in platforms such as the Quad, where US and Indian priorities on China are increasingly misaligned.

One of the Sharpest Downturns Since 1998

The confluence of tariff battles, accusations of interference, internal unrest, and shifting alignments has produced what observers describe as the most significant downturn in US–India relations since the nuclear standoff of 1998. The fallout extends beyond trade. Washington’s efforts to draw India closer to its Indo-Pacific strategy now face serious obstacles as New Delhi doubles down on ties with Moscow and reopens channels with Beijing. For India, domestic upheavals and rising nationalist rhetoric weaken its ability to present itself as a stable long-term partner. For the United States, the turbulence exposes the fragility of the narrative that the world’s two largest democracies are ‘natural allies’.

While both governments have signaled a willingness to resume negotiations in September, the mistrust that has built up in recent months is unlikely to dissipate quickly. Without a decisive course correction, the current turbulence risks hardening into structural fault lines that could reshape regional geopolitics for years to come.

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