On September 12, 2025, the world watched as Prime Minister Narendra Modi, Russian President Vladimir Putin, and Chinese President Xi Jinping clasped hands, their smiles beaming for the cameras—a symbolic show of unity at a time when global alliances are anything but straightforward. Yet, even as the dust settled on this high-profile gathering, another round of diplomatic maneuvering was already underway: U.S. President Donald Trump and Prime Minister Modi signaled a possible resumption of trade talks, introducing new uncertainty into India’s already complex foreign policy landscape.
For India, the stakes have rarely felt higher. According to Reuters, President Trump’s recent decision to slap hefty tariffs—totaling 50 percent overall, including a 25 percent penalty specifically targeting India’s transactions with Russia—has sent shockwaves through India’s export sector. The move, which Trump himself described as “a big deal” and “not an easy thing to do” in a September 12 interview on Fox & Friends, was intended to send a clear message about Washington’s displeasure with New Delhi’s continued purchases of Russian oil. “Look, India was their biggest customer. I put a 50 per cent tariff on India because they're buying oil from Russia. That's not an easy thing to do. That's a big deal and it causes a rift with India,” Trump said.
These tariffs, imposed on August 7, 2025, included an initial 25 percent duty plus an additional 25 percent punitive tariff, reflecting the growing tension between the two democracies. India was quick to respond, labeling the measures “unjustified and unreasonable,” a sentiment echoed by many within its business community and government. The timing could hardly be worse: as the U.S. pushes the European Union to consider tariffs of up to 100 percent on both China and India in a bid to pressure Russia to end its war in Ukraine, India finds itself navigating a diplomatic minefield.
Behind the headlines, the economic consequences are already being felt. Reports from Reuters indicate that India’s export-oriented sectors—ranging from carpet weaving to gems and jewelry, leather goods, and beyond—are entering “shock” mode. Production lines have ground to a halt, and large-scale layoffs are beginning to ripple through the workforce. Industry bodies and exporters are now appealing to the Reserve Bank of India for relief measures, including loan moratoriums, as they struggle to cope with the sudden downturn. While some of these industries may not account for a large share of India’s overall economic output, their role in providing jobs is significant. In a country where the employment market is already fragile, the loss of thousands of jobs could be devastating for families and communities alike.
Yet, the trade dilemma facing India is not limited to its relationship with the U.S. The country’s economic ties with China have also become a source of both opportunity and anxiety. India’s bilateral trade deficit with China has surged to over $99 billion in the last financial year, more than doubling the levels seen in FY2020-21, according to Reuters. This trade imbalance is the largest China enjoys with any Asian economy, underscoring the depth of India’s reliance on Chinese imports. More than half of India’s imports from China and Hong Kong are capital goods—machinery and equipment essential for manufacturing, infrastructure, and industrial supplies. As Morgan Stanley notes, these imports are critical for supporting India’s ambitions to climb the global value chain.
However, closer economic ties with China are fraught with complications. The border dispute that erupted in 2020 remains unresolved, casting a long shadow over any potential partnership. The Indian Army’s Deputy Chief recently described the contested region as a “live lab” for China, where India faces the challenge of managing “one border, two adversaries”—a reference to China’s ongoing support for Pakistan, including military equipment transfers. Security concerns, regional influence, and territorial integrity are all at stake, making any tilt toward Beijing a risky proposition.
Meanwhile, the U.S. has not hesitated to flex its economic muscle. President Trump’s push for tariffs is just one front in a broader campaign to confront Moscow’s energy trade. “But I've already done it. I've done a lot,” Trump said, touting his administration’s efforts to curb Russian influence. He went so far as to claim, “I solved seven wars. I did so many, including Pakistan and India, but big ones, some were unsolvable, Congo and Rwanda. I solved it. It was going on for 31 years, millions of people killed. I solve wars that was unsolvable.” While the veracity of such sweeping claims is open to debate, the message is clear: Trump sees himself as a dealmaker willing to take bold action, even at the cost of straining relationships with key partners like India.
Despite these tensions, there are signs that a compromise may be within reach. Washington’s ambassador-designate to Delhi, Sergio Gor, told senators in early September 2025 that, while India’s protectionist policies have created obstacles, the overall partnership remains strong. Gor emphasized the “deep friendship” between Trump and Modi, calling it “incredible” in light of the recent tariff spat. More importantly, he suggested that a trade deal could be close at hand. “We are not that far apart right now on a deal. In fact, they're negotiating the nitty-gritty of a deal,” Gor explained, hinting that an agreement could be finalized within weeks.
Yet, any deal will require tough choices. As Reuters points out, the U.S. is likely to focus on India’s ongoing imports of Russian crude oil, a lifeline for one of the country’s most powerful business conglomerates, Reliance Industries. In 2021, Russian crude accounted for just 3 percent of Reliance’s Jamnagar refinery imports. By 2025, that figure has skyrocketed to 50 percent—a shift driven by the changing dynamics of global energy markets and India’s desire for affordable supplies. To secure a trade agreement with the U.S., India may have to make significant concessions in this area, potentially sacrificing the future profitability of a corporate giant that also dominates the nation’s telecom sector.
At the same time, India will be under pressure to protect sensitive domestic sectors such as agriculture from tariff reductions, even as it tries to avoid further job losses in its export industries. The Trump administration, for its part, is expected to push hard on issues related to new technology and data centers, given Washington’s own fierce competition with Beijing in these fields.
The bottom line? As director Mitali Mukherjee of the Reuters Institute for the Study of Journalism put it, “As things stand, and as economic superpowers go, there are only two big players: the US and China. And there are, at this point, only two economic clubs to choose from—everything and everyone else is incidental.” India’s challenge is to navigate between these giants without sacrificing its security, economic ambitions, or regional standing. In her words, “There are no easy choices.”
With the coming weeks likely to bring pivotal decisions, India’s leaders face a crossroads that will shape the country’s future for years to come. The world is watching—and this time, the stakes couldn’t be higher.
