• US President Donald Trump announced the imposition of a 25 per cent tariff on all goods coming from India starting August 1, plus an unspecified penalty for buying Russian crude oil and military equipment.

• The penalty was announced as India has made large purchases of oil and military equipment from Russia. 

• India is the first country to face a penalty for Russian imports. 

• Earlier, Trump slapped high tariffs on China but refrained from levying any penalty despite Beijing being Russia’s largest oil importer.

• New Delhi is the largest buyer of Russian oil after China.

• India’s import of crude oil from Russia has risen from 0.2 per cent of total purchases before the Russia-Ukraine war to 35-40 per cent. 

• On April 2 this year, Trump announced high reciprocal tariffs on various countries, including India (26 per cent). The implementation of high tariffs was immediately suspended for 90 days till July 9 and later until August 1, as America is negotiating trade deals with various countries. However, the baseline tariff of 10 per cent remains.

• It was not clear if the 25 per cent duty will be imposed in addition to the existing 10 per cent baseline tariff. 

How India responded to the announcement?

• India said it is studying the implications of these tariffs and is still hopeful of concluding a fair, balanced and mutually beneficial trade agreement.

• India and the US have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. 

• Indian industry expressed disappointment over the announcement and said that it may impact the country’s exports and add to the worsening global trade situation.

• Meanwhile, negotiations for the proposed bilateral trade agreement are on as a US team is visiting New Delhi on August 25 for the sixth round of talks.

• The top officials of the countries concluded the fifth round recently in Washington.

India-US Trade Relations

• During 2021-25, the US was India’s largest trading partner. The US accounts for about 18 per cent of India’s total goods exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade.

• With America, India had a trade surplus (the difference between imports and exports) of $35.32 billion in goods in 2023-24. It was $41 billion in 2024-25 and $27.7 billion in 2022-23.

• In 2024-25, bilateral trade between India and the US reached $186 billion. India exported $86.5 billion in goods while importing USD 45.3 billion.

• In services, India exported an estimated $28.7 billion and imported $25.5 billion, adding a $3.2 billion surplus. Altogether, India ran a total trade surplus of about $44.4 billion with the US.

• In 2024, India's main exports to the US included drug formulations and biologicals, telecom instruments, precious and semi-precious stones, petroleum products, vehicle and auto components, gold and other precious metal jewellery, ready-made garments of cotton, including accessories, and products of iron and steel.

• Imports included crude oil, petroleum products, coal, coke, cut and polished diamonds, electric machinery, aircraft, spacecraft and parts, and gold.

What is tariff?

• The word tariff has been catapulted from the business pages to the headlines over the last few months, as major economies impose or threaten them on other nations. 

• But tariffs are not just a blunt weapon to be used in geopolitical brinkmanship. They can, if used effectively, help poorer countries develop their economies.

• A tariff or duty (the words are used interchangeably) is a tax levied by governments on imported products. Different tariffs are applied on different products by different countries.

• The tariff, along with the other assessments, is collected at the time of customs clearance in the foreign port.

• The UN defines tariffs as customs duties on merchandise imports, levied either on a percentage of value or on a specific basis.

• Historically, tariffs were a major source of revenue for many countries and were often the primary source of federal revenue through the late 19th century. Today, other taxes account for most government revenue in developed countries.

• Tariffs are now typically used selectively to protect certain domestic industries, advance foreign policy goals, or as negotiating leverage in trade negotiations.

• Tariffs are used widely, but they are imposed following rules that have been negotiated within the World Trade Organisation (WTO) or regional organisations.

• Reciprocal tariffs are imposed by countries to counter increases in duties or high tariffs by trading partners. It can be described as a tit-for-tat tax.

• Many important actors in global trade, such as the United States, the European Union and China, are imposing tariffs or measures that are not always in line with their commitments in the WTO.

• When Member States make unilateral decisions, without going through the WTO or UN System, it can create uncertainty, which may end up creating a slowdown in investment decisions in the private sector, in trade, economic growth and job creation.

• There have always been differences among countries, with certain sectors more affected by changes than others, and economic conditions can require certain kind of interventions.

• Developed countries often use tariffs as part of broader economic policies aimed at protecting specific industries or responding to international trade dynamics. In contrast, developing countries may use tariffs more broadly to protect nascent industries and support economic development.

• Experts say that tariffs themselves are not necessarily a problem. The issue is the uncertainty that results from big economic players ripping up the playbook of international trade rules.

• One way of helping an industry develop and grow is by protecting it, through tariffs, from foreign competition. The downside is that production of those goods for the domestic market is more expensive, and you may also deter competition.

• Another important point is governments need revenue. Tariffs are a tax, and a tax is income that a government can spend on social spending, health, education or infrastructure. But again, this means higher costs on imported goods for consumers.

(The author is a trainer for Civil Services aspirants.)