Increased Tariffs on India: A Self-Inflicted Wound for the U.S. Economy

Multiple analyses, including from the State Bank of India, suggest the U.S. will feel sharper inflationary pain than India. A 25% duty will instantly push up the cost of imported essentials ranging from pharmaceuticals to textiles, forcing U.S. consumers to pay more. Economists estimate that this could add $2,000 to $2,400 annually to the average American household’s expenses. Inflation, already sticky, will creep higher. The dollar could weaken. Small manufacturers reliant on Indian inputs will either raise prices or shut down: a slow bleed that tariffs rarely account for.

India’s economy is projected to grow at 6.4% in 2025-26, underpinned by strong domestic consumption and a diversified export base. The U.S. tariffs, affecting approximately $8.1 billion of India’s $86.5 billion in goods exports to the U.S., are estimated to impact only 1.87% of India’s total exports and 0.19% of its GDP. Sectors like engineering goods and electronics may face short-term challenges, with potential export losses of $1.8 billion and $1.4 billion, respectively. However, India’s robust domestic market, which accounts for a significant portion of its economic activity, provides a cushion that many export-heavy economies lack.

Moreover, India has strategic options to mitigate the impact. The PHD Chamber of Commerce and Industry (PHDCCI) suggests redirecting exports to alternative markets like the European Union, Canada, Latin America, and ASEAN countries, leveraging existing Free Trade Agreements. India’s proactive trade diversification, coupled with initiatives like “Make in India Select” to position premium products in high-end markets, enhances its adaptability. The Reserve Bank of India (RBI) Governor Sanjay Malhotra has emphasised that the tariffs’ impact is “manageable” unless India retaliates with reciprocal tariffs, which could exacerbate economic strain. There is no denying that these will cause immediate and significant pain for the nation. Economic analysts, including those from Morgan Stanley and Moody’s, have warned that the duties could shave up to a percentage point off India’s GDP growth. Labour-intensive sectors such as textiles, gems, jewellery, and seafood are already bracing for impact, with some industries halting production for U.S. orders and exploring moving their operations to other countries. This is a severe economic blow to a nation that was a rapidly growing trade partner and a key component of global supply chains.

India, for its part, has weathered such storms before. Its export basket is diversified, domestic consumption is strong, and alternative markets from Southeast Asia to the Middle East stand ready to absorb redirected goods. Yes, there will be short-term losses, possibly up to $8–33 billion in export value, but in GDP terms, the dent is minimal: around 0.2–0.3%. For a nation that’s now the world’s fastest-growing major economy, that’s a glancing blow, not a knockout punch.

By levying a tariff that puts Indian exporters at a significant disadvantage compared to rivals in Vietnam and Bangladesh, we are undercutting a partner we have long sought to empower. This punitive action risks alienating a key ally and pushes India to seek stronger trade ties with other nations, including those in the BRICS bloc, further weakening America’s strategic position on the global stage.

How does India retaliate?
India cancels 31,500 Crore Boeing Deal with the US. India’s decision to pause a deal to procure six P-8I Poseidon maritime surveillance aircraft is a direct response. The deal involved acquiring six additional P-8I Poseidon aircraft, critical for maritime surveillance and anti-submarine warfare, to bolster the Indian Navy’s capabilities in the Indian Ocean amid rising Chinese naval activity. Initially approved by the U.S. State Department in 2021 for $2.42 billion, the cost escalated to $3.6 billion by July 2025 due to supply chain disruptions, inflation, and U.S. tariffs on Indian components.

However, some have labelled the new tariffs a “geopolitical ambush.” This punitive action risks alienating a key ally, pushing India to deepen its trade relationships with the very nations the U.S. seeks to counter. Indian leaders, including Prime Minister Modi, have responded with defiance, highlighting the hypocrisy of targeting India while other nations continue their own trade with Russia. By undermining this vital relationship, we are weakening our strategic position on the world stage and benefiting our adversaries.

CONCLUSION
This policy is a blunt and destructive instrument. The quantifiable economic damage it inflicts on India is a short-term hit that the country, with its strong domestic demand and a resilient service sector, may well be able to absorb or mitigate through new trade agreements. However, for the United States, the costs are more insidious and long-lasting: a fresh wave of inflation for American families, destabilisation of critical supply chains, and the fracturing of a vital international alliance. A tariff war with a friend is no victory at all. It is a costly endeavour that weakens both sides, but in this case, the long-term strategic and economic damage to the United States far outweighs any perceived benefit.

The Smarter Path Forward

Trade disputes are inevitable, but they should be resolved through targeted negotiations, not blunt-force tariffs. The U.S. could work with India to address specific market-access concerns, align on supply-chain resilience, and deepen technology collaboration. Instead, it has chosen a path that punishes its consumers, strains a crucial alliance, and barely dents India’s growth trajectory.

History will likely remember this tariff not as a shield for U.S. industry, but as a mirror, reflecting how domestic politics can outweigh economic sense.