Why Russian Oil Buying Means More Tariff Turmoil for India
India is facing the prospect of a 50% tariff on exports to the US as President Donald Trump continues to impose a raft of trade restrictions.
Having already imposed a 25% tariff on Indian goods from 7 August, President Trump has since added an additional 25% penalty tariff as a result of India's oil trade with Russia.
The President has long threatened sanctions on Russia and those trading with the country, threatening economies around the world.
A history of partnership
Trump and Indian Prime Minister Narendra Modi began the former's second terms as close allies, setting a target to double trade between their countries to US$500bn by 2030.
Now, however, India's supply chains are facing major disruption and industry sectors will see a huge financial blow.
Although petroleum products, pharmaceuticals and smartphones currently have US tariff exemptions, other sectors are set to experience major disruption. Moreover, pharma remains at risk of a tariff increase.
India's top five exports to the US are:
- Electrical machinery
- Gems and jewelry
- Pharmaceuticals
- Nuclear reactors and machinery
- Mineral oils
GlobalData predicts the tariffs will result in an 11% reduction in US exports in 2025 and a 25% decline in India's trade surplus with the US. This will likely result in a supply chain ripple effect, increasing the cost of Indian goods around the world, especially in the US.
Ramnivas Mundada, Director of Economic Research and Companies at GlobalData, comments: “In 2024, the US accounted for approximately 18% of India's total goods exports.
"Anticipating reduced trade with the US, India is prioritising the acceleration of free trade agreement negotiations with the European Union, Peru and Chile to shift around 10% of the trade to Latin American countries and the EU, and enhance the resilience of labour-intensive industries.”
Trump's tariff raise
Amid ever-shifting geopolitical tensions, global trade has been through significant changes over the past year.
Countries across the globe have been desperate to reach trade deals with the US to reduce tariff sanctions, but India has become the latest to receive a major tariff hike.
Earlier this year, Trump threatened a 100% tax on any country which trades with Russia in an attempt to mediate the Russia-Ukraine conflict.
In July, he said: "I used trade for a lot of things, but it's great for settling wars."
The new 50% rate is due to occur from 27 August, less than a month after the original 25% tariff was due to start.
A response from India's foreign ministry stated that the tariff is "unfair, unjustified and unreasonable".
Russia provides India with more than 35% of its overall oil supplies, with India buying approximately 1.75 million barrels of Russian oil a day in the first half of 2025. The White House stated that India's ongoing trade with Russia undermine US attempts to stop Russia's attacks on Ukraine.
Despite Trump's threats, the US had an estimated US$3.5bn worth of traded goods with Russia in 2024.
"It is therefore extremely unfortunate that the US should choose to impose additional tariffs on India for actions that several other countries are also taking in their own national interest," the Indian foreign ministry statement read.
In discussing the protection and welfare of Indian farmers, small businesses and entrepreneurs, it states: "India will take all actions necessary to protect its national interests."
Ajay Srivastava, former Indian trade official and Head of the Global Trade Research Initiative, warns: "India should remain calm, avoid retaliation for at least six months and recognise that meaningful trade negotiations with the US cannot proceed under threats or mistrust."
With many farmers and small businesses at risk of their products facing higher tariffs, businesses will inevitably face a battle to survive.
The 50% trade tariff could be devastating for India's economy, but with the constantly shifting climate, a potential US-India deal may not be completely off the table.