On the morning of August 27, 2025, a new chapter in global trade tensions unfolded as US President Donald Trump’s administration enacted a secondary 25% tariff on Indian imports, bringing the total levy to a staggering 50%. The move, which followed an initial 25% reciprocal tariff imposed on August 7, has sent ripples across the global economy and stoked concerns within India’s export-dependent sectors. Yet, against the backdrop of mounting pressure, India’s response has been anything but meek.
According to The Economic Times, while other major economies like Japan, the European Union, and South Korea have yielded to Trump’s tariff threats, India has stood its ground. This resistance is not mere bravado; it’s a calculated stance rooted in the country’s economic resilience, strategic reforms, and a drive to diversify trade relationships.
India’s confidence in weathering the tariff storm is underpinned by its macroeconomic stability. On August 26, S&P Global Ratings upgraded India’s sovereign rating to ‘BBB’ with a stable outlook—the first such upgrade in 18 years. The rating agency cited robust economic growth, fiscal discipline, and prudent monetary policy as key factors. India’s economy is projected to remain the fastest-growing major economy worldwide, with GDP growth rates far outpacing global averages. Strong foreign exchange reserves, manageable debt levels, and a contained current account deficit insulate the country from external shocks. As S&P Global Ratings Director YeeFarn Phua told The Economic Times, “Exposure of India to the US in terms of exports is just 1% of GDP. So, even though tariffs remain high, we don't think it will have an overall impact on India's long-term growth prospects. Short term, it might have some marginal hit to growth, over a longer term, we believe India's growth story remains sound.”
But the US is India’s single largest export market, accounting for 18% of India’s total exports in 2024, according to a Barclays Research report cited by Business Standard. Of India’s $80 billion in merchandise shipments to the US, $55 billion—about 70%—are now exposed to punitive tariffs, with only smartphones, petroleum products, and pharmaceuticals enjoying temporary exemptions. Labor-intensive sectors such as textiles, gems and jewellery, leather, and footwear are especially vulnerable. The report notes that a 60% effective tariff on Indian apparel makes it “nearly impossible to compete against Bangladesh and Sri Lanka, where tariffs remain 20%.”
India’s effective tariff rate has soared to 50%, while competitors like Vietnam (20%), China (30%), and several Southeast Asian nations (around 19%) face much lower rates. Meanwhile, India’s tariffs on US imports remain at 9.4%, highlighting a stark asymmetry. The average trade-weighted tariff for India now stands at 35.7%, compared to just 2.7% at the start of 2025, according to Business Standard.
Despite these challenges, India’s economy is uniquely positioned to absorb external shocks. More than 60% of its GDP is driven by domestic consumption—household spending, services, and infrastructure—which cushions the impact of trade disruptions. The government is also pushing ahead with significant tax reforms. A proposed restructuring of the Goods and Services Tax (GST) aims to lower rates on essential goods and improve compliance. According to an SBI Research Report referenced by The Economic Times, these GST reforms, combined with recent income tax cuts, could boost consumption expenditure by Rs 5.31 lakh crore—about 1.6% of GDP. The multiplier effect of this spending is expected to invigorate various sectors, offsetting some of the export losses inflicted by US tariffs.
Prime Minister Narendra Modi’s administration has seized the moment to launch what it calls “next-generation” reforms. Two high-level panels were formed in August 2025 to recommend sweeping changes across logistics, digital infrastructure, labor laws, and capital markets. As Dhiraj Nim, an economist at Australia & New Zealand Banking Group Ltd, told Bloomberg, “Your usual policy levers are not going to work very well in the current environment. So, the only way out is for you to undertake those slightly tougher reforms.” Modi’s aim, according to officials, is to turn crisis into opportunity, accelerating structural transformation and enhancing India’s global competitiveness.
Trade diversification is another pillar of India’s response. In July, India signed a comprehensive Free Trade Agreement (FTA) with the UK, and negotiations with the European Union and Russia are progressing rapidly. On August 20, India and the Russia-led Eurasian Economic Union signed the Terms of Reference in Moscow to launch FTA negotiations. Talks with Oman have concluded, and a deal may soon be signed. With the 10-nation ASEAN bloc, review negotiations for the existing FTA are ongoing. These moves are designed to reduce India’s reliance on the US market and open new avenues for exports.
India’s untapped export potential to China is also significant. A recent study by ICRIER, cited by The Economic Times, estimates this potential at $161 billion, mostly in medium and high-tech sectors such as telephone sets, aircraft, turbojets, motor vehicle parts, and photo-semiconductor devices. Diversifying into these sectors could help India offset losses in traditional markets.
The tariffs have not only affected trade but also reverberated through global commodity markets. As reported by ING, oil prices fell by 2.3% on August 26, partly due to the imposition of the US secondary tariffs on India. Initially, Indian refiners paused purchases of Russian oil, but they have since resumed buying, undeterred by the new levies. The market is closely watching Russian oil flows to India to gauge the longer-term impact.
Meanwhile, the broader commodities landscape continues to shift. US crude oil inventories fell by 1 million barrels in the week ending August 26, with gasoline and distillate stocks also declining. In China, steel inventories at major mills rose 4% in mid-August compared to early August, while crude steel production increased by 2%. Chinese semi-finished steel exports have surged 320% year-on-year in the first seven months of 2025, driven by demand from Southeast Asia and the Middle East.
Other sectors are feeling the pinch too. In agriculture, Brazil’s CONAB revised its sugarcane crush estimates upward for the 2025/26 season but cut sugar output projections due to unfavorable weather. Russia’s wheat production and export projections have also been raised, reflecting shifting global supply chains.
For India, the US tariff shock is undoubtedly a blow—one that exposes vulnerabilities in labor-intensive export sectors and highlights the need for a more balanced trade relationship. Yet, the country’s response is anchored in economic logic, not nationalistic defiance. With macroeconomic strength, a resilient domestic market, ongoing reforms, and an active push to diversify trade, India appears poised not only to withstand the current storm but to emerge more robust in the long run.
