Trump’s 25% Tariff Cliff: A Test for PM Modi’s Image and Multi-Alignment Doctrine

As President Trump’s tariff brinkmanship hits India’s exports to USA, PM Modi’s response will test his ‘India First’ approach and the shift from non-alignment to pragmatic multi-alignment.

Author Credentials:

Karan Bir Singh Sidhu, IAS (Retd.), Former Special Chief Secretary, Punjab, and MA (Economics), University of Manchester, writes at the intersection of India’s bilateral relations, trade and tariff negotiations, and the use of Trump-era tariffs as an instrument of geo-strategy.

The 25 % Jolt: Can Indo-US Trade Weather Trump’s New Tariff Storm?

President Donald Trump on 30 July 2025 declared that every good entering the United States from India will face a 25 % “reciprocal” tariff, plus an unspecified penalty, from 1 August. In a Truth Social post he wrote in full:

“While India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country. They have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE — ALL THINGS NOT GOOD!”

The announcement landed just as the Modi Government—under a fierce opposition assault in Parliament over Trump’s claim of brokering a cease-fire during Operation Sindoor—was already fighting political headwinds. The tariff decree has therefore hit New Delhi like a mini-tsunami.

Why the negotiations collapsed

Despite months of shuttle diplomacy covering agriculture, medical devices and digital services, Washington demanded deep cuts in farm-sector protections and strict limits on India’s purchases of discounted Russian oil—red lines for New Delhi. Commerce Secretary Howard Lutnick made the deadline crystal-clear: “no extensions, no grace period.” With neither side willing to yield, the axe has now fallen.

Russian oil: the immovable peg

Russian crude—some of it settled through rupee trade or even barter—has become indispensable for India’s refineries and industry, especially since New Delhi complies with U.S. sanctions on Iranian oil that China blithely ignores. Expecting India to jettison this lifeline, while Europe long relied on colossal Russian gas flows and even now is signing long-term deals to import more U.S. LNG, was always optimistic at best. Whether Trump’s focus on Russian oil becomes the tipping-point in relations or merely a bargaining lever remains to be seen.

Who feels the heat? India’s most exposed exporters

The tariffs directly target merchandise exports, not services. Among India’s goods exports to the U.S., pharmaceuticals, electrical and electronic equipment, gems and jewellery, auto components, textiles, apparel, leather goods, and footwear form the largest segments. Pharmaceuticals and generic drug manufacturers, whose exports are worth nearly $9 billion annually, will face an immediate squeeze in their most critical market. The gems and jewellery sector, mostly based out of Gujarat, valued at roughly $9 billion, will also be hit, especially since it is highly price-sensitive. Electrical and electronic equipment exports—around $12 billion—may see disruptions for contract manufacturers who operate on thin margins. Machinery and auto components worth $6 billion are similarly vulnerable, with smaller suppliers likely to explore shifting production bases to Mexico or Southeast Asia. Meanwhile, textiles, apparel, leather goods, and footwear—labour-intensive sectors worth about $5 billion collectively—risk losing competitiveness to other low-cost exporters.

By contrast, software and IT-enabled services—India’s largest export to the U.S., generating over $70 billion annually—remain insulated for now, since they are digitally delivered and not subject to border tariffs. However, prolonged trade tensions could eventually spill into calls in Washington for stricter barriers in the service sector too.

The tariff windfall—and who actually pays

The White House boasts of $150 billion in tariff receipts over just six months, yet independent studies show roughly two-thirds of the cost falls on U.S. consumers through higher prices and about one-third on American companies via squeezed margins. Only a sliver is absorbed by foreign exporters, who seldom slash prices enough to offset the duty.

A friend, but taxed like a foe

Trump’s stance is paradoxical: warm words for India’s strategic partnership, punitive action on trade. His charge sheet—high tariffs, Russian arms and energy deals, “obnoxious” regulations—has given political cover for a sweeping levy that plays well with his domestic base even as it jolts a friendly democracy.

India’s roadmap forward

• Keep the diplomatic door open. Offer calibrated tariff cuts on selected U.S. goods in exchange for suspension or rebate of duties after the U.S. election cycle.

• Diversify markets. Deepen ties with ASEAN, the EU and Indo-Pacific partners to absorb labour-intensive exports now at risk.

• Accelerate internal reforms. Push logistics-cost reductions, expand Production-Linked Incentive schemes and fast-track a trade-facilitation law that could shave up to 7 % off landed export costs.

• Pursue legal safeguards. File consultations at the WTO to preserve options for a future U.S. administration, even if appeal channels remain blocked today.

• Hedge smartly. Encourage rupee-denominated invoicing with energy-rich partners and expand supply-chain footprints in tariff-neutral zones such as Mexico and Vietnam.

A calculated test of resolve

For India’s policymakers and its global diaspora, the headline duty is daunting, yet the deeper story is that American households and firms shoulder most of the tariff burden. If New Delhi navigates this storm with strategic patience—avoiding knee-jerk retaliation, doubling down on competitiveness and leveraging its indispensable role in Washington’s Indo-Pacific calculus—it may well emerge stronger from this latest trial in the tumultuous saga of Indo-US commerce.

PM Modi’s Image at Stake

Crucially, this will serve as a litmus test not only for Commerce Minister Piyush Goyal and External Affairs Minister S. Jaishankar, but also for India’s key trade negotiators in how they respond from here. Above all, it will test Prime Minister Narendra Modi’s doctrine of putting India first, anchored in his ‘Atma Nirbhar Bharat’ (self-reliant India) clarion call, which seeks to fortify domestic manufacturing, reduce overdependence on external markets, and project India as a confident economic power. This moment will reveal whether Modi can withstand Trump’s trademark brinkmanship, even as the latter has repeatedly—on at least two dozen occasions—claimed to have mediated a cease-fire between India and Pakistan.

How deftly this crisis is managed will directly influence Modi’s domestic standing, serving as proof of whether his shift from non-alignment to pragmatic multi-alignment can truly safeguard India’s sovereign interests. Regardless of attempts by pro-government media to frame this episode as a strategic win, the ultimate judgment will rest on whether PM Modi can hold his ground against Trump’s hard-edged tactics while projecting India as an assertive and self-confident global player—one that relies on reason and rationality rather than rhetoric.