Economy

India-U.S. Trade Talks Stalled: How New Tariffs Threaten India’s Economic Growth

August 23, 2025, 9:12 AM

A high-angle view of a large blue container ship loaded with colorful containers, docked at a port and positioned next to a large crane.

A high-angle photograph of a large container ship being loaded or unloaded at a port, representing the complex logistics of global shipping. By Miami Daily Life / MiamiDaily.Life.

Executive Summary

The U.S. is set to impose additional tariffs, potentially reaching 50%, on Indian goods, primarily due to India’s increased purchases of Russian oil, despite ongoing trade negotiations.

India’s Foreign Minister Subrahmanyam Jaishankar stated New Delhi has “redlines” to defend its “national interest” and questioned the selective U.S. scrutiny over India’s Russian oil imports compared to other major buyers.

Analysts project the full implementation of U.S. tariffs could hit India’s economic growth by 0.8 percentage points, while previous bilateral trade talks had also faltered over India’s reluctance to open its agricultural and dairy sectors.

The Story So Far

The impending U.S. tariffs on Indian goods, which are currently being negotiated, are primarily a response to India’s increased purchases of Russian oil, although India questions the selective application of U.S. scrutiny given other major buyers. This situation is further complicated by long-standing bilateral trade disagreements, particularly India’s reluctance to open its agricultural and dairy sectors to U.S. imports, leading India to assert its “redlines” and right to make decisions in its “national interest.”

Why This Matters

The impending U.S. tariffs, primarily a response to India’s increased purchases of Russian oil and existing disagreements over market access, signal a significant escalation in bilateral trade tensions. These levies, potentially reaching 50%, are projected to cause a substantial economic hit to India, reducing its growth by 0.8 percentage points for the current and next year, while underscoring New Delhi’s firm stance on defending its “national interest” despite the economic repercussions.

Who Thinks What?

India’s Foreign Minister Subrahmanyam Jaishankar states that trade negotiations with the U.S. are ongoing despite impending tariffs, emphasizing India’s “redlines” and “right to make decisions in our ‘national interest’,” while questioning the selective application of tariffs related to Russian oil purchases and describing President Trump’s foreign policy approach as “unusual.”

The United States is imposing additional tariffs on Indian goods, citing India’s increased purchases of Russian oil, and has cancelled a planned visit by trade negotiators, signaling continued strain in bilateral trade relations.

Analysts at Capital Economics project that the full implementation and sustainment of U.S. tariffs could significantly impact India’s economic growth, potentially hitting it by 0.8 percentage points for the current and next year.

India’s Foreign Minister Subrahmanyam Jaishankar announced that trade negotiations with the United States are ongoing, despite the imminent imposition of additional U.S. tariffs on Indian goods, citing “redlines” New Delhi intends to defend. These tariffs, which could reach up to 50%, are primarily a response to India’s increased purchases of Russian oil, with a further 25% tariff set to take effect on August 27, following an initial 25% already in force. The development follows the cancellation of a planned visit by U.S. trade negotiators to New Delhi, diminishing hopes for a reduction or postponement of the levies.

Ongoing Trade Tensions

The impending tariffs mean Indian goods face some of the highest additional levies imposed by Washington. A 25% tariff has already been implemented, with the remaining 25% scheduled for enforcement in the coming days. The cancellation of U.S. trade negotiators’ visit to New Delhi further signals continued strain in bilateral trade relations.

Foreign Minister Jaishankar emphasized India’s commitment to its negotiating positions. “We have some redlines in the negotiations, to be maintained and defended,” he stated, adding that it is India’s “right to make decisions in our ‘national interest’.”

Historical Context of Negotiations

Bilateral trade talks between India and the U.S. had previously faltered earlier this year. These discussions reportedly collapsed due to India’s reluctance to open its substantial agricultural and dairy sectors to U.S. imports. The trade relationship between the world’s largest and fifth-largest economies is valued at over $190 billion.

Economic Implications

Analysts at Capital Economics have projected significant economic consequences for India if the full U.S. tariffs are implemented and sustained. They estimate a potential hit of 0.8 percentage points to India’s economic growth for both the current year and the next, should the measures remain in place.

India’s Stance on U.S. Policy and Russian Oil

Minister Jaishankar also commented on the approach of President Trump regarding foreign policy announcements, describing them as “unusual.” He noted that President Trump’s public conduct of foreign policy represents “a departure from the traditional way of conducting business with the world.”

Regarding U.S. concerns over India’s Russian oil purchases, Jaishankar questioned the selective application of such scrutiny. He highlighted that other major buyers, including China and the European Union, are not facing similar tariff actions. “If the argument is oil, then there are (other) big buyers. If argument is who is trading more (with Russia), than there are bigger traders,” he remarked, pointing out that Russia-European trade surpasses India-Russia trade.

Furthermore, Jaishankar stated that India’s purchases of Russian oil were not raised during earlier trade discussions with the U.S., prior to the public announcement of the tariffs.

In conclusion, India and the U.S. continue to navigate complex trade relations marked by impending tariffs linked to India’s energy imports from Russia and historical disagreements over market access. India’s government maintains its position on national interests while acknowledging the potential economic repercussions of the U.S. trade actions.