Trump announces 25% tariff on India, slaps additional penalty for buying Russian oil & weapons

United States President Donald Trump announced on Jul. 30 that the U.S. will be imposing a 25 per cent tariff on goods from India from Aug. 1, as well as an additional penalty due to India's purchasing of Russian oil and military equipment.

Will have to pay an additional penalty

Trump made his announcement in a post on Truth Social, stating the reason for his decision is because India's "tariffs are far too high, among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country".

He also added that because India bought military equipment from Russia and is Russia's largest buyer of oil, which enables Moscow's war in Ukraine, the U.S. will be charging India an additional "penalty" on top of the 25 per cent tariff rate.

The additional penalty remains unclear for now.

According to the Associated Press (AP News), Trump told reporters that talks between the U.S. and India are still ongoing and that "[they'll] see what happens".

India studying implications of the tariff rate

The Times of India reported that India's Ministry of Commerce and Industry said "the government has taken note of a statement by the U.S. president on bilateral trade", and are currently studying its implications.

They added that the two countries have been engaged in negotiations on concluding a "fair, balanced and mutually beneficial" bilateral trade agreement the past few months and India remains "committed to that objective".

They affirmed that "the government will take all steps necessary to secure [their] national interest".

The revised U.S. tariff rate will affect India's export of goods to America, projected to be approximately US$87 million (about S$113 million) in 2024.

This includes labour-intensive sectors such as garments and pharmaceuticals.

The U.S. currently has a US$45.7 billion (about S$60 billion) trade deficit with India.

Fear that India could be put at a disadvantage in the U.S. market

According to The Times of India, with the new tariff rate, India risks losing its competitive edge in U.S. exports.

Other Asian countries have managed to secure lower tariff rates in their deals with the Trump administration, with Japan paying 15 per cent, Vietnam paying 20 per cent and Indonesia paying 19 per cent.

The 25 per cent tariff rate imposed on India is seen as "a negative development as it compares to lower rates for peers such as Vietnam, Indonesia and Philippines which compete with India in a similar category of labour-intensive products and electronic goods", said Garima Kapoor of Elara Capital, as reported in The Times of India.

U.S. previously warned India about high tariff rates

According to Reuters, India had previously been warned about its high average applied tariffs — nearly 39 per cent on agricultural products, with rates as high as 45 per cent of vegetable oils and about 50 per cent on apples and corn.

Multiple rounds of discussions were previously held between the two countries to resolve their disagreements, particularly over allowing greater market access for U.S. agricultural and dairy products in India.

However, India emphasised that its top priority is to safeguard the interests of its domestic producers.

The new tariff rate could complicate earlier commitments by Indian Prime Minister Narendra Modi and Trump to conclude the first phase of a trade deal by autumn and expand bilateral trade to US$500 billion (about S$648 billion) by 2030.

Top photo via Canva