Tensions between India and the United States have escalated sharply since July 31, when President Donald Trump imposed a 25% tariff on Indian goods entering the US and, for the first time, threatened further penalties over India’s ongoing oil trade with Russia.
The move marks a significant escalation in what is increasingly being viewed as a simmering tariff war, one that could jeopardise the hard-won economic and strategic partnership between the world’s two largest democracies.
India, which has emerged as one of the top buyers of Russian crude, imported approximately 1.75 million barrels per day between January and June this year, a 1% rise from the same period last year. Trump’s repeated accusations that India is “fuelling the Russian war machine” and profiting from the resale of discounted Russian oil have drawn sharp rebukes from New Delhi.
The Indian government under leadership of Prime Minister Narendra Modi has defended its energy policy as a matter of national interest and energy security, noting that the US and EU themselves continue to trade with Moscow in various capacities. India has reportedly declined the US offer to purchase F-35 stealth fighter jets, signalling a strategic shift toward self-reliance in defence. It signals a shift toward self-reliance and indigenisation under the “Make in India” initiative.
Amid this diplomatic row, Russia has weighed in by defending India’s right to determine its own trade relationships, further complicating Washington’s stance.
Industry leaders in India have expressed deep concern over the potential fallout, warning that the tariffs could disrupt global supply chains, raise costs for exporters, and undermine India’s competitiveness in the US market, one of its largest trading partners.
If not managed carefully, the intensifying trade tensions could sour relations between two nations that have, in recent years, expanded cooperation on defence, technology, clean energy, and Indo-Pacific security.
Trump targets India over Russia ties
US President Donald Trump has criticised India as “not a good trading partner” and announced plans to “very substantially” raise tariffs on Indian imports within 24 hours, citing its continued purchase of Russian oil.
“They're fuelling the war machine,” Trump said, adding that India’s high tariffs on US goods remain a key issue. His comments follow an earlier warning accusing India of buying large quantities of Russian oil and reselling it for profit.
India has strongly criticised the US and EU for what it calls unfair targeting over its Russian oil imports, pointing out that both continue significant trade with Moscow despite the Ukraine war.
In a rare united stance, both the ruling BJP and opposition Congress condemned Donald Trump’s repeated attacks on India.
“It is unjustified to single out India,” the foreign ministry said, highlighting that the EU traded €67.5 billion with Russia in 2024, including record LNG imports. The US, it added, still imports Russian uranium, palladium, fertilisers, and chemicals.
Both countries relationship at risk
Once seen as a strong partnership between ideological allies, the Modi-Trump relationship has entered turbulent waters amid a flurry of hostile moves from Washington. Trade talks were abruptly halted, a 25% tariff was slapped on Indian goods via social media, and China was granted another extension. Washington also announced further tariff hikes and signalled penalties over India’s oil imports from Russia, moves seen in New Delhi as coercive and undermining India’s strategic autonomy.
Relations further soured when US firms operating in India were warned of penalties unless they relocated to America, pitting Trump’s “America First” agenda directly against Modi’s “Make in India” policy. In a diplomatic snub, the US also hosted Pakistan’s Army Chief just weeks after a terror attack on Indian soil, while offering Islamabad better trade terms and cooperation on oil. At the same time, growing US techno nationalism has sparked fears in India over restricted innovation, offshoring limits, and reduced trust.
For the first time in two decades, India-US relations have become a point of domestic political contention in India. The opposition has called on the Modi government to respond firmly, warning against the perception of diplomatic weakness. In Washington, partisan divides over immigration, H-1B visas, offshoring, and tech sharing have increased the risk of India becoming a political football in US domestic politics.
History shows that once trust is lost, even long-standing partnerships are difficult to repair. The hard-won progress of recent years, built on bipartisan support, strategic trust, and mutual restraint, is now at risk. Trump’s unilateral rhetoric, warm overtures to Pakistan, and aggressive posturing, including calling India a “dead economy,” threaten to undo years of delicate diplomacy.
Speaking to Asian Voice, Dr Arun Kumar, Assistant Professor of British Imperial, Colonial, and Post-Colonial History at the University of Nottingham, explained, "Trump's proposed tariff implementation against India is part of his larger plan to reshape the global economic order and pushing the agenda of ‘America First’. However, they risk the long tradition of friendly India-US trade and foreign relations that extend to domains of skill, knowledge transfer, defence, exchange of goods and services. The Trump administration's objective is to further liberalise Indian markets and open them up for US products, especially dairy and other agrarian products. However, this standoff is not necessarily economic but rather political. President Trump's closer relations with Pakistan and reduced tariffs for Pakistan also adds to the tension along with Trump's dislike of the fact that India purchases Russian oil and is part of the BRICS. India-US relations have deepened over the decades, but they have been subjected to pressures of domestic and global politics, like this one. Navigating a better deal that mutually benefits the two countries will be the most challenging step for both country's foreign diplomacy after the Indo-US nuclear deal in 2008.
“India has a long history of pursuing its foreign policy independently since the Nehruvian period, and Trump's unreasonable punitive demands produce fissures in the Indo-US relations, forcing India to reevaluate its foreign trade and diplomacy. India has the right to pursue its energy needs independently, and a better approach would be for the Trump administration to negotiate rather than impose punitive tariffs. India's needs are very different from those of the USA-- it has a large rural population that relies on selling milk and agrarian products; and it needs to prioritise inclusive development and meet its medicinal demands without price increase. Trump's announcements threaten all this. Ultimately, the two countries must come together, recognise each other's needs, and take the trade to a new height, rather than derail the progress so far made,” he added.
Experts warn GDP hit as tariff deal falters
With US-India ties strained by a tariff war, experts say the specifics of the US penalty will be key to assessing its true economic impact on India.
“The proposed tariffs and penalties are higher than expected and could act as a drag on India’s GDP,” said Aditi Nayar, chief economist at Icra. The ratings agency recently cut its GDP forecast for the year from 6.5% to 6.2% in anticipation of the adverse effects.
Nomura echoed similar concerns, calling the move “growth negative” and estimating a potential 0.2% hit to India’s GDP.
Markets opened in the red following the announcement. “The expectation was for a tariff deal, given US-India’s long-term strategic alignment,” said fund manager Nilesh Shah.
Despite recent concessions from India, like lowering tariffs on US goods such as Bourbon whiskey and motorcycles, talks haven’t yielded a deal. The US continues to run a $45 billion trade deficit with India, a figure Trump is keen to shrink.
“India will now be at a disadvantage compared to rivals like Vietnam and China in attracting investment and industrial growth,” warned Rahul Ahluwalia of the Foundation for Economic Development.
US tariffs on Chinese imports have dropped from 145% to 30% after talks in Geneva and London, and a deal with Vietnam slashed proposed tariffs from 46% to 20%. With India now facing a 25% tariff and no longer enjoying a competitive edge, hopes of a supply chain shift to India, particularly in sectors like textiles, have dimmed.
Tariffs raise import costs, dampen demand, and squeeze exporters' margins. India’s commerce ministry is reviewing the implications, while reaffirming its commitment to a fair deal that protects farmers, MSMEs, and sensitive sectors like agriculture and dairy, key stumbling blocks in negotiations.
Critics have slammed the government’s foreign policy, with the Congress party calling it a “catastrophic failure,” citing Modi’s past support for Trump.
Adding to the complexity, Trump has linked the trade deal to India’s ties with Russia. While India defends its energy purchases and strategic autonomy, former US trade official Mark Linscott says progress still hinges on Modi directly engaging with Trump to seal headline commitments on energy, defence, and investments.
Despite tensions, talks will continue through August, with hopes of lowering tariffs and securing a deal by fall. However, even a successful outcome may only bring tariffs down to 15–20%, which Nomura calls “disappointing.” Still, with India’s economy less dependent on exports, the impact could be cushioned, possibly prompting interest rate cuts to support growth.
Trump calls India ‘dead economy’; Modi cites growth surge
A day after announcing a 25% tariff hike on Indian goods, along with an unspecified “penalty” tariff for India’s continued purchases of Russian energy and arms, US President Donald Trump escalated tensions by branding both India and Russia as “dead economies.”
In a post on Truth Social, Trump wrote, “I don’t care what India does with Russia. They can take their dead economies down together, for all I care.” He also criticised India's trade policies, claiming, “We have done very little business with India. Their tariffs are too high, among the highest in the world.”
The former president also issued a warning to former Russian President Dmitry Medvedev, whose July 28 post on X (formerly Twitter) criticised Trump’s aggressive rhetoric toward Russia. Medvedev had said: “Trump’s playing the ultimatum game with Russia: 50 days or 10… He should remember two things: 1. Russia isn’t Israel or even Iran. 2. Each new ultimatum is a threat and a step towards war, not with Ukraine, but with his own country. Don’t go down the Sleepy Joe road!”
In response, Trump fired back, “He’s entering very dangerous territory!”
At a rally in Varanasi, Prime Minister Narendra Modi reaffirmed India's economic resilience amid global instability triggered by Donald Trump’s tariff hikes. He stated that India is on track to become the world’s third-largest economy and urged citizens to support ‘swadeshi’ products, calling it essential for safeguarding national interests. “We must be vocal for locals,” he said, appealing to all political parties to set aside differences and support the movement for self-reliance.
Addressing national security, Modi launched a strong attack on Pakistan and terrorism, citing Operation Sindoor as a warning to India’s enemies. “Anyone who messes with India will not be spared, even in ‘pataal lok’,” he declared.
He also criticised the Opposition, accusing Congress and the Samajwadi Party of undermining the armed forces and sympathising with Pakistan. “Congress has called Operation Sindoor a ‘tamasha’. Should we wait to kill terrorists or ask permission first?” he asked, alleging that previous governments handed out “clean chits” to terrorists for vote bank politics.
Meanwhile, former US President Donald Trump may have dubbed India a “dead economy”, but the data tells a sharply different story.
Despite global uncertainties and trade tensions, India remains the fastest-growing major economy, with a projected growth rate of over 6%. Last year, India’s GDP expanded by 8.2%, surpassing China (5.2%), the US (2.7%), and the EU (0.7%). Its nominal GDP stands at $4.3 trillion, double what it was in 2014, and in purchasing power parity terms, it’s estimated at $16 trillion, contributing 9% of global GDP and 16.1% of global growth over the past decade.
India is now the world’s 4th largest economy, expected to overtake Germany by 2027 to claim the 3rd spot. It ranks 4th in foreign exchange reserves, 7th in gold holdings, 3rd in number of startups, and 2nd in mobile phone manufacturing. With a stable debt-to-GDP ratio of 82% and a young, dynamic population, 65% under the age of 35, India holds a unique demographic advantage.
Since 2014, nearly 250 million people have been lifted out of extreme poverty. Schemes like Ayushman Bharat are providing health coverage to over 500 million citizens, while advancements in space exploration, from Chandrayaan-3 to the upcoming Gaganyaan mission, are positioning India as a global tech and innovation leader.
Does this reflect a “dead economy”? On the contrary, India’s trajectory suggests an emerging powerhouse, one that is not just asserting itself economically and geopolitically, but also extending a hand as a global partner for peace, growth, and opportunity. Perhaps it’s time for critics, including former US presidents, to reassess India’s position, not through rhetoric, but through facts.
