Trump’s Tariff Threat Looms Over India-US Relations Amid Ceasefire Controversy
Concerns about rising tensions in India-US relations are heightened after recent statements made by US President Donald Trump regarding a possible 20-25% tariffs on Indian goods, a bold move that could completely change the dynamic in bilateral trade between the two countries. Trump’s reference to “meetings” in regards to a cease-fire between India and Pakistan adds to the confusion, revealing the tension in diplomatic relations but also changing the perceptions of the economic relationship and raising the stakes for India. While the question remains whether New Delhi can respond to US threats, India will not abandon its traditional policy of strategic autonomy when external economic pressures could influence its decisions.
The looming question about tariffs of 20-25% on Indian exports, which had grossed $74 billion in goods to the US in 2024, is already unsettling Indian markets and investment opportunities. According to India Today (July 30, 2025), Trump’s comments imply that India’s tariffs on American goods were amongst the highest globally and when combining that with his tariff threat, he is attempting to engage in reciprocity. Last year bilateral trade was estimated at $129 billion and India’s surplus was approximately $46 billion, so the impact of potential tariffs could threaten sectors if key exports like pharmaceuticals, textiles and jewelry are impacted by high tariffs on exports.
Nonetheless, Indian negotiators are preparing for talks with a US delegation in mid-August, and they hope to complete a comprehensive trade deal by September or October. New Delhi is focused on getting exemptions from tariffs, while ensuring sensitive areas, such as agriculture and dairy, will remain non-negotiable.
Trump’s comments claiming that he mediated a ceasefire between India and Pakistan and that he took credit for tariffs has only muddied the waters even further in the negotiations. In talking to Reuters, he said he used trade to stop Indian hostilities after India’s Operation Sindoor (which was a response to a terrorist attack in Pahalgam killing 26 individuals). However, India’s Ministry of External Affairs (MEA) has formally rejected these claims and stated that the ceasefire was negotiated only between the Indian Military and Pakistan’s Military on May 10, 2025. MEA spokesperson Randhir Jaiswal stated, “The issue of tariffs never came up in our discussions with the US,” pointing to India’s rejection of mediation from a third party on an issue with Pakistan which can be sensitive like Kashmir. This reinforces India’s clear position that on all issues, especially Kashmir, it has always wanted to engage bilaterally with Pakistan under the umbrella of the Simla Agreement from 1972.
The threat of tariffs and the controversy over a ceasefire has also revealed some of the precariousness in the US-India relationship. Even as Prime Minister Modi and Trump enjoy a personal relationship, analysts have characterized Trump as having adopted a transactional approach – including “extortion in the clothing of friendship” – that raises questions about trustworthiness. As noted by former diplomat Ajay Bisaria, an agnostic approach that allows India to retain regional power in South Asia is India’s best tactic, as it protects the bigger picture of partnership including defense cooperation and the QUAD. However, domestic criticisms from within India, led by the Congress Party, are demanding clarification on whether Trump is signalling a move towards foreign mediation, which is a red line for New Delhi.
As India prepares for economic repercussions that may result from Trump’s threats, experts believe that India is robust and resilient. Goldman Sachs and Fitch have pointed out that India’s limited dependency on US exports (2.2% of GDP) creates a cushion against the US, especially if we compare it to India’s competitors like Vietnam. India’s focus on diversifying trade routes and on domestic demand should temper the potential adverse impacts from Trump’s threatened tariffs. Regardless, this incident is a wake-up call for stronger and more rigorous diplomacy to protect India’s economic and strategic interests, while shoring up India’s position in the world.
