An Ordinary Person’s Guide to Trump’s Trade (Tariff) War on India

We are in the midst of a World War, yet few recognise it. War so hidden, sinister, and yet deadly. A barrage of ballistic missiles and drones may destroy buildings and kill thousands of people, but this war has the potential to destroy the livelihood of millions without even firing a single bullet.

A whole country could be ravaged in a tailspin of economic destruction, mass unemployment, and economic desperation. Welcome to the era of Trade wars. A war not of our choice, but the consequences of which, we cannot avoid. A war that is trying to reshape the global economy and impose new global power relations between the hegemons/superpowers and the subordinated powers.

How the weapon of Trade War works?

One of the most prominent weapons of trade war is tariff. Tariff is just a fancy name for Tax. But it refers to the tax on imported goods and services. Any increase in tariffs increases the price of imported goods in the country which imposes the tariff.

A higher tariff has two distinct impacts. Firstly, a higher tariff makes imported goods more expensive in the country which imposes the tariff. For example, if USA imposes a tariff on Indian goods, then the price of Indian goods in USA goes up. As a result, when Americans buy fewer Indian goods because of the higher prices, Indian companies have to decrease their production and employ fewer workers.

Secondly, a higher tariff forces domestic consumers (USA) to pay higher prices for imported goods (Indian), which leads to a higher cost of living and economic hardship for citizens of the country (USA) that imposes the tariff.

So why does a country impose a tariff?  Is a tariff always bad for business, jobs, and the economy? It depends from whose perspective you are asking these questions. Context matters, history matters.

Imagine, you are a poor and developing country, and you want to protect your new and high-cost incurring industries or you want to protect certain strategic sectors (agriculture) from foreign competition. In order to do so, developing countries impose high tariffs on foreign-made imported goods. At the same time, developing countries also want to export more to wealthy developed countries with large markets, so they want lower tariffs for their exports to developed countries. This strategy of protecting local industries by creating trade barriers is often labelled as ‘Protectionism’.

On the other hand, a highly developed country with advanced technologies can produce goods at a larger scale with lower cost and lower price. They want a lower tariff for their exports to developing countries. Developed countries can also provide huge subsidies, making their products even cheaper and harder for developing countries’ industries to compete with their products. Developed countries aim to capture and control the market of developing countries by selling their cheaper products there. This will harm and decimate high-cost new industries and strategic sectors, like agriculture, in developing countries. Therefore, developed countries advocate for low/zero tariffs for their export goods to developing countries and are strong supporters of “Free Trade”.

Ironically, all developed countries were strong supporters of Protectionism during their developing phases, yet they now try to impose “Free Trade” policies on every other country.

Terrain of Warfare:  Studying weakness and strength

The USA is a major trade partner of India.  An average US citizen’s income is 30 times higher than an Indian citizen’s income. Hence, the USA buys more goods and services from India than India does from them. For trade in goods only (excluding services), exports to US alone accounted for 17.9% of all exports by India in the year 2024. For trade in services (BPO, finance, software services etc.), the US alone accounted for 60% of India’s total export of services in 2024. But the same is not true for USA. Only 2% total US export in goods went to India and only 2.8 % of the total imports of USA came from India in 2024. It is clear that India depends more on USA for trade, but the opposite is not true. This fact gives immense leverage and bargaining power to USA.

Potential Casualties of War: Impact on India

Trump initially imposed a 25% tariff on Indian exports on 7th August 2025, which was again raised to 50% on the pretext of India continually buying Russian oil.

However, a 50% tariff will only be effective from 27 August 2025. Interestingly, a 50% tariff does not apply to the Services exports of India to the US. Last year, the value of India’s exports to the USA was roughly $81 billion (or Rs 7,10,613 crores).

This 50% higher tariffs will lead to US customers paying 50% higher prices for many Indian goods in USA. Since higher prices lead to lower demand, the sales of Indian goods will also decline in USA. A rough estimate is that for any 1% increase in price of Indian goods, demand in the US will fall by roughly 1% (0.9 % to be precise). So, a fifty percent increase in prices due to tariffs will lead to a 50% fall in demand of Indian exports in USA, which amount to roughly Rs 3,19,755 crores. This could be the immediate impact on India due to Trump’s tariff. Think of this amount as equal to the 20-year Budget of the Sikkim government or the total income of Sikkim for 6 years.

Certain sectors that are heavily dependent on USA as an export market are Engineering goods, Gems and jewellery, Textiles, Organic Chemicals, Carpet, Furniture, Steel and aluminium, Auto parts, and Copper. Gems, especially the cut Diamond sector, alone employs 20 lakh workers in Gujarat, and will be drastically hit by a 50% tariff, and most of the workers will either be unemployed or will be forced to accept a drastic reduction in wages.

Another challenge for India is that Trump has imposed far lower tariffs (from 15% to 20 %) on other countries like Japan, Vietnam, and South Korea, which gives them a significant advantage compared to India. It simply means that these countries will be able to sell goods at a cheaper rate in USA, thereby displacing Indian exports.

Method behind the madness: Real Danger in the Trump’s Trade Deal

But the real target of Trump’s tariff war is forcing India to reduce tariffs on certain important sectors like Agriculture, Dairy, which employs nearly 46% (roughly 26 crores) of our total workers. India, like any other developing country, protects these sectors from foreign competition as foreign goods are heavily subsidised and hence kept deliberately very cheap. Imagine how Amul/Sikkim Cooperative Milk Producers Union (SCMU) would compete with US milk if it sells at Rs 20 per litre? If India reduces tariffs and allows such cheap subsidised US goods in the Indian market, then the entire agriculture, dairy, and other sectors will be decimated in a few years. While American businesses gain, Indian farmers and agricultural workers will lose big.

No previous Indian government has dared to open this sector fully for foreign competition, due to fear of a permanent and irreversible electoral setback. Hence, intense bargaining is going on between both countries. Lives of the poorest and most vulnerable population are at stake in this Trade deal.

Way Forward: Alternative Export Destinations, Diplomatic counter-pressure, and Increasing reliance more on the Domestic Market

India should search for alternative destinations for its exports while preparing for the impact of the current tariffs. Since Trump has a volatile temperament of changing his agreements frequently, India needs to apply both diplomatic and economic counter-pressures on the US, much like China and Mexico have done. In the long term, India should rely less on exports for economic growth and instead focus on increasing the purchasing capacity (income) of domestic citizens. Reducing income and wealth inequality will create a huge demand for goods and services domestically, providing a sustainable path for economic growth.