Introduction

For decades, trade has been the backbone of US-India relations, fueling economic growth and strengthening ties between the world’s two largest democracies. However, during President Donald Trump’s second term, the trajectory of this partnership took a sharp and contentious turn. The US has imposed steep tariffs on key Indian exports, hitting industries like steel, aluminum, electronics, textiles, and agriculture. The Trump administration argues that these tariffs are necessary to protect American jobs and industries, but for India, they feel like an economic ambush. In response, India has fought back with its own tariffs, strategically targeting American whiskey, apples, and almonds, products that come from politically sensitive states like California and Kentucky, which are strongholds of Trump’s support. The message is clear : If the US raises prices on Indian goods, India will make it costlier for American producers to sell in its market. While both governments dig in their heels, the economic strain is increasingly evident, with businesses and consumers on both sides beginning to feel the heat.

The impact of escalating U.S. – India trade tensions is already evident. India’s merchandise exports to the U.S. in March 2025 reached $10.14 billion, up 35.06% from March 2024, as exporters rushed shipments ahead of the new U.S. tariffs imposed from April 2, 2025. However, this temporary spike conceals deeper structural concerns, as India’s overall exports to the U.S. are projected to decline by 6.41% in 2025, amounting to an estimated loss of $5.76 billion, driven by the impact of the 26% reciprocal tariffs. Sectors like steel and aluminum are already witnessing severe contractions, with steel exports to the U.S. down by nearly 85%, triggering concerns about oversupply and falling domestic prices. Additionally, the Federation of Indian Export Organisations (FIEO) reports that small manufacturers are experiencing a 12-15% rise in input costs due to disrupted supply chains and limited U.S. market access. With both countries still managing post-pandemic recovery and global supply chain realignments, this tariff war couldn’t have come at a worse time. As a result, trade relations between Washington and New Delhi have become strained, with Indian exporters grappling with weakening demand and U.S. farmers and manufacturers facing declining sales in one of their key markets. India now stands at a strategic crossroads: should it retaliate with tougher trade restrictions, initiate a WTO dispute, or prioritize diversifying its global trade footprint to reduce U.S. dependence? Each option carries significant economic and geopolitical implications. As economist Ashok Gulati notes, “India must carefully weigh its response, balancing strategic retaliation with efforts to strengthen domestic industries and diversify its export markets. While protectionist policies may offer short-term relief, a long-term vision focused on self-reliance and trade expansion is the need of the hour.” This issue-brief explores Trump’s tariff regime, India’s countermeasures, the unfolding economic fallout, and the roadmap to safeguard India’s trade interests while ensuring long-term economic resilience.