'Obnoxious non-monetary trade barriers': Trump announces 25% tariff plus ‘penalty’ on India from August 1

New Delhi: US President Donald Trump on Wednesday announced imposition of 25% tariff plus "penalty" on Indian goods effective from August 1, citing high trade barriers and New Delhi's continued energy and defense ties with Russia.

In a strongly worded statement, Trump described India's trade policies as the “most strenuous and obnoxious non-monetary trade barriers of any country'.

“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,” Trump said in a post on Truth Social.

Alluding to strong India-Russia ties, Trump said “they (India) 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 killings in Ukraine.”

“India will therefore be paying a tariff of 25%, plus penalty for the above, starting on August first,” the US President added. However, he did not clarify what exactly the “penalty” would entail.

The new tariff is in-line with the 26% “reciprocal tariff” on India announced by Trump on April 2. Implementation was delayed first to July 9 and then to August 1 for negotiation of trade deals.

Trump’s announcement comes amid ongoing negotiations for a bilateral trade agreement between the two countries. Trade representatives from India and the United States have held five rounds of talks in the past couple of months, but no agreement has been reached.

Prime Minister Narendra Modi government said it is studying the implications. “India and the US have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective,” the Ministry of Commerce & Industry said in a statement.

“The Government attaches the utmost importance to protecting and promoting the welfare of our farmers, entrepreneurs, and MSMEs,” the ministry said alluding to differences on dairy and agricultural products in the ongoing trade negotiations.

The Indian goods will now face among the highest tariffs in the US. The tariffs imposed on the comparable economies like Indonesia (19%) and Vietnam (20%) and the Philippines (20%) are much lower. Though the US President has threatened China with 125% tariffs, it has been given a longer pause till August 12. The US and China are engaged in negotiations for a trade deal. Any US-China deal would put India in a severe disadvantage.

Main opposition Congress Party took a dig at the Prime Minister, saying India is “paying price for Modi's friendship” with Trump. “Modi campaigned for Trump, hugged him eagerly, posed for photos, and made it trend on social media. In the end, Trump still imposed tariffs on India. India’s foreign policy has completely failed," Congress Party said in a post on X.

Industry bodies expressed disappointment saying the US tariffs will impact India's exports and consequently the economic growth.

"While this move is unfortunate and will have a clear bearing on our exports, we hope that this imposition of higher tariffs will be a short-term phenomenon and that a permanent trade deal between the two sides will be finalised soon," said Harsha Vardhan Agarwal, President, FICCI.

ICRA Chief Economist Aditi Nayar said the tariffs will impact India’s economic growth. “The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India's GDP growth. The extent of the downside will depend on the size of the penalties imposed,” she said.

“If this tariff is sustained, this move may directly affect key sectors such as marine products, pharmaceuticals, textiles, leather, and automobiles, where bilateral trade has been especially robust,” said Agneshwar Sen, Trade Policy Leader, EY India.