India isn’t flinching: Why Trump might be misreading India’s tariff playbook

US President Donald Trump and Indian Prime Minister Narendra Modi hold a joint press conference in the East Room of the White House in Washington, DC, on February 13, 2025. Andrew Caballero-Reynolds | Afp | Getty Images

India's stock market showed little sign of panic a day after the U.S. announced a 50% tariff on goods from the country and threatened secondary sanctions over its continued oil trade with Russia. The Sensex, the benchmark index for India's blue-chip stocks, ended the day around 0.1% higher on Aug. 7. From bureaucrats to businesses, there's a broad consensus in India that the latest escalation from the U.S. is only a pressure tactic to fast-track trade talks. However, Indian Prime Minister Narendra Modi now has something he didn't have, even a day earlier: the support of the Indian opposition to push back. Rahul Gandhi, the leader of India's largest opposition party, the Indian National Congress, described the penalty for Russian oil purchases as "economic blackmail" by Trump.

Subscribe now Get a weekly roundup of news from India in your inbox every Thursday.

Consequently, the Indian negotiators' resolve may only get stronger, especially in talks over areas that directly affect the country's farmers. "India will never compromise on the interests of the country's farmers, fishermen, and livestock breeders. I know it will cost me personally, but I am ready," Modi said on Thursday morning, hours after the U.S. increased tariffs.

By most estimates, the cost of losing trade with the U.S. is significant for India but not debilitating. The most pessimistic estimate is from Morgan Stanley. It says that if all goods are subject to a 50% duty, the impact on India's gross domestic product is likely to be 60 basis points, about $23 billion at current exchange rates. On the other hand, the cost of allowing U.S. dairy exports into India — one of the most contentious issues— is expected to cost India 1.8 lakh crore rupees ($20 billion) alone, according to SBI Research, a unit of the country's largest bank. A little over half of that burden will hit farmers directly in the form of falling retail prices, SBI said, unless the government compensates for the loss.

Indian exports to the U.S. Sector Exports to the U.S. in 2024 Share of India’s exports to the U.S. Electronics $11.1 billion 14.30% Gems and jewelry $9.9 billion 12.80% Pharmaceuticals $8.1 billion 10.40% Nuclear reactors, parts, machinery $6.2 billion 8% Refined petroleum products $5.8 billion 7.50%

The additional tariffs could also be catastrophic for India's gem and jewelry companies, a spokesperson for the industry lobby told CNBC-TV18 on Thursday, while Indian seafood exporters, who sell the bulk of their produce to the U.S., may lose nearly $3 billion a year at the 25% tariff effective today, according to analysts at Morgan Stanley. India's labour-intensive textile industry, meanwhile, expects $5 billion worth of business to move away from India in the next few months due to the tariffs. High U.S. duties will also affect India's ability to attract foreign direct investment (FDI), according to Arvind Sanger from Geosphere Capital Management, a New York-based broker. India's position is bolstered by the fact that over 60% of its GDP comes from domestic consumption, however. The Indian rupee will be the immediate casualty, according to Mahesh Patil, who oversees more than 3 lakh crore rupees ($35 billion) worth of financial assets at the Mumbai-based Aditya Birla Mutual Fund as its chief investment officer. However, Patil also noted that the rupee settling at lower levels against the U.S. dollar may offset some of the hit on Indian exporters, and the impact may be visible with a lag of a few months.

A snapshot of India’s trade with the U.S. Total bilateral trade in 2024 $212.3 billion Goods trade $129 billion Services trade $83.4 billion U.S. deficit in goods trade with India $45.8 billion U.S. surplus in services trade with India $102 million

About 40% of India's entire trade with the U.S. is in services, which is not even a point of discussion so far as the U.S. exports more services to India than it imports. Trump also hasn't paid heed to the call for curbs on the H1-B visa, which is a route mostly used by Indian nationals looking to fill talent gaps — particularly in the tech sector — in the U.S.

Amid Trump's threat of secondary sanctions on India, Modi is planning his first visit to China since 2018. And, close on the heels of U.S. envoy Steve Witkoff, India's National Security Advisor Ajit Doval is visiting Russia in an effort to pursue India's interests through diplomacy. Meanwhile, India's foreign ministry has hit out at what it calls U.S. hypocrisy in ignoring its own trade with Russia that has continued through the war in Ukraine, an allegation that Trump brushed aside but didn't deny. It's also important to note that Indian companies own stakes in many Russian oil fields. Trump's trade advisor, Peter Navarro, has also alleged that India uses the dollars from trade with America to pay for Russian oil, however most of India's oil trade with Russia is settled in dirhams, the currency of the United Arab Emirates (UAE), refiners have told CNBC-TV18. India has been a lot more willing than Brazil and China to find a middle ground with the U.S. The government has already reduced duties on imports of U.S. motorcycles, bourbon, ethernet switches, synthetic flavoring essences and fish hydrolysate, to name a few. It has also allowed Tesla to set up shop in Mumbai and withdrew the equalization levy on internet giants, widely known as the Google tax. India has also increased its oil purchases from the U.S. by 120% in the last six months, source in the Indian government told CNBC-TV18, which was one of Trump's primary demands when Modi visited the White House in February 2025. However, since then, Trump has moved the goalposts from just reducing the U.S.' trade deficit with India to the South Asian country's relationship with Russia.