India braces for headwinds as Trump signs tariff order over Russian oil

India is bracing for major economic and diplomatic headwinds after US President Donald Trump signed an executive order on Wednesday, 6 August, imposing an additional 25% tariff on Indian imports, taking the total duty on some goods to 50%.

The additional 25% tariff, imposed over India’s oil trade with Russia, stacks on an existing levy and will take effect in 21 days under Trump’s executive order. Broader sanctions could follow if New Delhi doesn’t scale back its energy ties with Moscow.

The White House said the move is part of broader emergency actions under US law to counter “an unusual and extraordinary threat” to national security stemming from Russia’s war in Ukraine.

While the US has stopped short of penalizing its own imports of Russian-origin materials such as uranium and palladium, the Trump administration has targeted India and China for indirectly funding Russia’s war economy.

The order, issued under the International Emergency Economic Powers Act, accuses India of importing Russian oil either directly or through intermediaries and states that additional tariffs are “necessary and appropriate” to counter this threat.

It applies to all Indian goods entering US customs territory after the 21-day grace period, excluding shipments already en route.

The escalation follows weeks of warnings from Trump and marks the first formal action against a close US partner over Russian oil purchases.

Trump had earlier set an 8 August deadline for Russian President Vladimir Putin to agree to a Ukraine truce or face renewed sanctions and pressure on countries buying Russian energy.

India now finds itself caught between geopolitical crosswinds.

According to an internal government assessment this week, India risks losing price competitiveness on up to $64 billion worth of exports to the US, more than 80% of its total outbound trade to America, Reuters reported.

The same government report assumes an additional 10% penalty on Russian oil transactions, taking the effective duty burden to 35%.

Key Indian sectors including garments, pharmaceuticals, petrochemicals, gems, and jewelry could suffer, Indian officials have warned, with policymakers scrambling to prepare protective measures for vulnerable segments like textiles, leather, seafood, and engineering goods.

India exported goods worth an estimated $81 billion to the US in 2024, about 2% of its GDP. Any trade disruption now would widen the risk to growth, especially in an already uncertain global environment.

Prime Minister Narendra Modi is expected to travel to China at the end of this month for the Shanghai Cooperation Organisation (SCO) summit, in what would be his first visit since the 2020 Galwan clash.

The timing suggests India is looking to maintain diplomatic flexibility with Beijing even as pressure from Washington mounts.

In New Delhi, the official tone remains resolute.

The ministry of external affairs (MEA) on 5 August rejected the US move as “unjustified and unreasonable,” noting that the US and European Union continue to import Russian commodities, including uranium, chemicals, and fertilizers.

“Like any major economy, India will take all necessary measures to safeguard its national interests and economic security,” the MEA said.

At a White House press briefing on 6 August, Trump dodged a reporter’s question on whether the US itself was guilty of “double standards.”

Asked why Washington still imports Russian-origin materials while criticizing India, Trump replied, “I don’t know anything about it, I would have to check, but we will get back to you on that.”

Meanwhile, backchannel diplomacy is in full swing.

India has dispatched national security adviser Ajit Doval to Moscow to discuss strategic and energy ties, including delayed deliveries of the S-400 missile system.

A visit by external affairs minister S. Jaishankar is expected to follow in the coming weeks.

India’s central bank, which met just hours before the executive order was signed, offered no change in policy but acknowledged the risk backdrop.

The Reserve Bank of India (RBI) kept the benchmark repo rate unchanged at 5.5%, pausing after a 100-basis-point easing cycle earlier this year.

RBI governor Sanjay Malhotra said the bank would monitor “the evolving geopolitical situation” even as headline inflation dipped to a 77-month low of 2.1%.

Goldman Sachs, on the other hand, sees trouble ahead.

In a 1 August note, it trimmed India’s GDP forecast by 10 basis points for 2025 and 20 for 2026, citing “uncertainty shock” linked to Trump’s tariff threats.

“Some of these tariffs are likely to be negotiated lower over time,” analysts Santanu Sengupta and Arjun Varma wrote, “but further downside risks mainly emanate from the uncertainty channel.”

The bank also expects one more rate cut, of 25 basis points, later this year.

India’s foreign exchange reserves dropped $9.3 billion to $688.9 billion as of 1 August, the sharpest weekly fall in nearly three years.

Economists attributed the decline to the RBI’s intervention to stabilize the rupee, which fell 1.18% during the week.

Whether Trump follows through with further action, he previously threatened to raise tariffs to 100%, remains to be seen.

The order gives Trump sweeping authority to amend, escalate, or suspend tariffs based on how other countries respond or how Russia behaves.

Unidentified people in the Kremlin told Reuters that Putin is unlikely to accept a truce deadline, especially while Russian forces are making battlefield gains.

For India, the stakes are immediate. With limited leverage over the global energy trade and an export market suddenly under threat, New Delhi may need to walk a fine line, protecting its energy security without alienating either Washington or Moscow.