Explained | Impact of Trump tariff on Indian businesses

New Delhi: US President Donald Trump on Wednesday announced the imposition of a 25 per cent additional import duty plus penalty on goods imported from India.

The duty will come into effect from August 1. The unspecified penalty was imposed on India for purchasing crude oil and military equipment from Russia.

The announcement came as a surprise, as the two countries are negotiating a trade agreement. Here is a list of Q&A (questions and answers) to explain the impact of the US move:

What is a tariff?

These are customs or import duties imposed on the import of goods. The importer has to pay this duty to the government. Normally, companies pass on these taxes to end users.

How much tariff is announced on India?

The US has announced to impose a 25 per cent tariff plus penalty for buying Russia's crude oil and military equipment. However, the US has not specified the quantum of the penalty and how it will be imposed. An executive order from the White House on the 25 per cent tariff plus penalty will give clarity on the duty structure.

A 10 per cent duty (announced on April 2) applies to all goods.

Besides, there is a 50 per cent tariff on steel and aluminium, and 25 per cent on auto and auto parts. These duties are imposed over and above the existing tariffs on Indian goods. For example, textiles attract a 6-9 per cent tariff at present, so after adding the 25 per cent, Indian textile goods entering the US from August 1 will attract a 31-34 per cent duty. A penalty could be added further on this.

Why is the US imposing these tariffs?

The US has alleged that it faces a significant trade deficit with India, blaming New Delhi for imposing high tariffs on American goods, which it says restricts US exports to the Indian market.

What is bilateral trade between India and the US?

During 2021-25, the US was India's largest trading partner in goods. The US accounts for about 18 per cent of India's total exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade. In 2024-25, the bilateral trade touched $186 billion ($86.5 billion exports and $45.3 billion imports).

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

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.

However, according to think tank GTRI, the US runs a $35-40 billion overall surplus when revenues from education, digital services, financial activities, royalties, and arms trade are factored in.

What are the major products traded between the two?

In 2024, India's main exports to the US included drug formulations and biologicals ($8.1 billion), telecom instruments ($6.5 billion), precious and semi-precious stones ($5.3 billion), petroleum products ($4.1 billion), vehicle and auto components ($2.8 billion), gold and other precious metal jewellery ($3.2 billion), ready-made garments of cotton, including accessories ($2.8 billion), and products of iron and steel ($2.7 billion).

Imports included crude oil ($4.5 billion), petroleum products ($3.6 billion), coal, coke ($3.4 billion), cut and polished diamonds ($2.6 billion), electric machinery ($1.4 billion), aircraft, spacecraft and parts ($1.3 billion), and gold ($1.3 billion).

What will be the impact of the tariffs on this trade?

Import duty makes goods expensive in the importing country. Besides, a few other factors also play a role in this. For example, duty on India's competitor nations such as Bangladesh (35 per cent), Vietnam (20 per cent) and Thailand (36 per cent); and quality and standards of items.

According to exporters, Indian labour-intensive goods such as garments, leather and non-leather footwear, gems and jewellery, carpets and handicrafts may get impacted due to this duty.

What will be the US tariffs on key Indian goods from August 1?

Telecom - 25 per cent; gems and jewellery - 30-38.5 per cent (5-13.5 per cent at present); food and agri goods - 29-30 per cent (14-15 per cent currently); apparel 12 per cent plus 25 per cent. Penalty component may also be there from August 1.

Is there a substance on Trump's allegations that India has very high tariffs?

According to experts, no. The US also imposes high duties on items like dairy products (188 per cent), Fruits and vegetables (132 per cent), Coffee, tea, cocoa and spices (53 per cent), Cereals and food preparations (193 per cent), Oilseeds, fats and oils (164 per cent), beverages and tobacco (150 per cent), Minerals and metals (187 per cent), and Chemicals (56 per cent).

India's average tariff rate of 17 per cent is higher than the US's 3.3 per cent, but similar to other major economies like South Korea (13.4 per cent) and China (7.5 per cent).