Amid all the upheaval thrown up by Donald Trump’s tariff blitzkrieg, there are some assumptions that the Indian government had implicitly factored in: that a bilateral trade deal, like all deals, would involve some give and take; that Washington DC will maintain a differential of 10-20 per cent in tariffs between China and countries such as India; and that the American side would be cognizant of India’s traditional redlines that have endured for decades, including concerns over GM food crops and the need to safeguard the interest of the country’s vast subsistence-level manufacturing base that has an oversized contribution to the country’s labour-intensive exports.

All those assumptions are now under a cloud, as policymakers in New Delhi grapple with Trump’s statement announcing a 25 per cent tariff on Indian goods from August 1, alongside an additional but unspecified “penalty” for its defence and energy imports from Russia. On the face of it, India’s Commerce and Industry Ministry said the government had taken note of Trump’s statement and was “studying its implications”. Alongside this, the trade ministry also reiterated its engagement in negotiations that aimed at concluding “a fair, balanced and mutually beneficial bilateral trade agreement”, which placed importance on “protecting and promoting the welfare of India’s farmers, entrepreneurs, and MSMEs”.

In private, though, a senior government official did concede that some of what Trump announced was expected, given that the tariff comes close to the original “reciprocal tariff” of 26 per cent, while reiterating India’s stance that trade negotiations cannot be held at gunpoint. What is concerning is that Trump’s latest statement triggers more confusion than providing clarity, especially over the additional penalties that he announced and the cumulative impact of all of these other sectoral tariffs, over and above the specified headline tariff.

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The official also underlined that the view in government here is that a majority of those who have rushed in to sign deals with the world’s biggest economy have ended up with lopsided agreements that effectively extracted more than what it gave. This includes countries such as the UK and Australia that have a trade deficit with the US.

“That is simply not an option for us. We would prefer to wait it out for an equitable deal that does not negatively impact our farmers and small enterprises. No deal is better than a bad deal,” an official told The Indian Express. There is, however, a degree of discomfort over the US-Pakistan deal Trump announced Thursday to tap Pakistan’s “massive oil reserves”, coming in the wake of a similar crypto deal signed earlier by Islamabad. “It is for countries to decide what to give and what to take (in a negotiation)… There are limits to which India is willing to go to extract concessions. Others might not have such limitations,” the official quoted above said. “We are striving for an equitable deal. And we are invested in that effort. Till the time that happens, we might have to bear the impact of these temporary tariffs. There will be an impact on our exports, but all that will be a thing of the past once a deal is achieved. Enduring some short-term pain is better than suffering in the long-term,” the official said.

Deal with the US

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Indications are that the outer limit for a deal with the US, currently pegged at around October from New Delhi’s perspective, could be brought forward, if fresh negotiations are positive from India’s point of view. What complicates the equation for India is that the Chinese are at an advanced stage of negotiations towards a deal, which could have a favourable tariff rate and potential waivers on secondary tariffs, including possibly the tariff on account of Russian oil imports and the proposed 10 per cent BRICS tariff. China is currently faced with a 30 per cent tariff.

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From India’s perspective, a deal needs to be clinched precisely for ensuring the gap in tariffs between India and China is maintained, even with a limited early-harvest type of deal. New Delhi did back out at the last minute from signing the Regional Comprehensive Economic Partnership (a trade deal among Asia-Pacific countries including China) given the sensitivities of agri livelihoods.

There is, however, greater receptiveness now within India’s policy circles to cut tariffs on some industrial goods, alongside a willingness to grant concessions in sectors such as public procurement and agri provided these are matched by the other side, like in the case of the UK deal. Also, India has indicated its willingness to import more from the US, especially in three big-ticket sectors – defence equipment, fossil fuels and nuclear – to manage Trump’s constant references to the trade gap.

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There is also an understanding in sections of the Indian government that the US has historically maintained an open stance on trade, which fostered decades of globalisation that benefited everybody, including America. Prior to Trump’s taking over in January, the effective US duty on India was just 4 per cent, and there were virtually no non-tariff barriers, an official said. “But that was borne out of a conscious choice exercised in a bipartisan manner by multiple administrations in Washington DC. That does not mean they can now seek payback from everyone, as the current administration is attempting to do,” an expert aligned with the government said. A higher-than-anticipated US tariff rate, especially on a comparative basis, could dent India’s growth prospects, economists said.

Though Trump did not specify the rate of penalty for India on account of Russian oil and defence imports, earlier statements made by Trump indicate that it could be to the tune of 100 per cent. This way, India stands to potentially lose the US tariff advantage vis-a-vis China at least till the time a deal is struck, even if Beijing, too, faces the same penalty for importing from Russia.

However, some experts said that Trump’s charges regarding non-tariff barriers by India are unlikely to stand up to scrutiny as India’s tariffs are WTO compliant. Think tank Global Trade Research Initiative (GTRI) said in a statement Wednesday that by refusing to cross its red lines, particularly on agriculture, India has helped avoid “the trap of a one-sided deal”. “India’s tariffs are WTO-compliant, non-tariff barriers are common globally, and discounted Russian oil has helped India manage inflation during global volatility…India is not alone; over 90 countries face similar US pressure. A deal may still emerge, but only on fair terms. For now, India’s principled stand has avoided the trap of a one-sided deal, and that’s a success,” GTRI said.

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Trump on Monday had cut short a deadline for Moscow to make progress toward a Ukraine war peace deal or see its oil customers slapped with secondary tariffs of 100 per cent in 10-12 days. “So I think anyone who buys sanctioned Russian oil should be ready for this,” US Treasury Secretary Scott Bessent had said.

China is the largest buyer of Russian oil, at about 2 million barrels per day, followed by India (just under 2 million a day) and Turkey. China had agreed to cut tariffs on US goods to 10 per cent from 125 per cent in May, while the US had agreed to lower tariffs on Chinese goods to 30 per cent from 145 per cent.

Given how talks between Indian and US negotiators have proceeded, an interim deal still seems distant and is unlikely to be clinched before September, with October a possible outer deadline. Indications are a sixth round of talks between the two negotiating teams will take discussions forward in August.

Without the BRICS levy and the Russian oil penalty, India’s 25 per cent compares reasonably well with countries such as Indonesia (19 per cent) and Vietnam (20-40 per cent) that have wrapped up deals, and could have had an advantage over the current levels of tariffs faced by China (30-34 per cent) and Bangladesh (35 per cent). The equation changes when the additional levies are factored in, especially the one triggered by Russian purchase. There is no clarity yet on how that will be applied.

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Once the interim deal is clinched, if the final US headline tariff on India ends up between 10 per cent and 15 per cent, the tariff points offered to the UK and Japan, respectively, New Delhi would have reasons to be satisfied. The advantage starts to taper off once the tariff goes over 15 per cent and inches up closer to 20 per cent, as was offered to Vietnam. A trans-shipment clause, of the kind slapped on Vietnam which levies an additional 20 per cent tariff, could be a problem for India too, given that a lot of Indian exports have inputs and intermediate goods in sectors such as pharma, engineering goods and electronics coming in from outside, including China.

Sanctity of deals

There are also question marks about the sanctity of any trade deal that this American administration was to sign. A new BRICS tariff proposed on a whim, or fresh copper and pharma tariffs, high duties on strategic partners like Japan and South Korea or Trump now reneging on the terms of the USMCA deal that he himself signed with Canada and Mexico in his last term: they’re all indicative of the fickleness of any agreement signed by this administration. The future of US trade deals and their perceived sanctity remains vastly uncertain, with potential implications for global economic stability and cooperation. Businesses across the world are left hanging, waiting for some semblance of certainty. Global supply chain experts say that it is both expensive and cumbersome for companies to switch manufacturing to different countries. Given the frequent changes in the policy, it is almost impossible for companies to strategise.

New Delhi is closely tracking the final American duty offer on China, given its belief that Trump will maintain a tariff differential. US and Chinese officials wrapped up two days of discussions in Stockholm on Tuesday, with no breakthrough announced. After the talks, China’s top trade negotiator Li Chenggang declared that the two sides agreed to push for an extension of a 90-day tariff truce struck in mid-May, without specifying when and for how long this extension kicks in. The effective duty on Chinese products on a landed basis across US ports in commodity categories where Indian producers are reasonably competitive is being tracked constantly. The net tariff differential with India, and how that curve continues to move, is of particular interest here, given the belief that Washington DC would ensure a reasonable tariff differential between China and India. Officials said a 10-20 per cent differential is expected to tide over some of India’s structural downsides — infrastructural bottlenecks, logistics woes, high interest cost, the cost of doing business, corruption, etc.

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For Indian negotiators, extra tariffs on steel and aluminium, over and above the baseline, is an added complication, alongside the proposed BRICS tariff. New 50 per cent tariffs on copper products from August 1 is yet another problem for India, which exported $2 billion worth of copper and copper products globally in 2024-25, with the US accounting for 17 per cent of that amount. Trump’s insistence on zero duty access to the Indian markets, like in its deals with Vietnam and Indonesia, is yet another problem for India.

Once the official level discussions wrap up by mid-August, there is a sense that a final call on the deal could come down to a conversation between the two leaders, Prime Minister Narendra Modi and Trump. This is especially so since it is Trump who is the trade negotiator-in-chief. For India, the best-case scenario would be to get a deal of some sort now, and then build on that in the future negotiations that could run into 2026, experts said. With Trump announcing the tariffs and penalties on India, that phone call could come in earlier.