Dealbreaker from Trump?

Trump ends Indo-US trade deal talks, imposing 25% tariffs on India, impacting exports and strategic ties, raising concerns over energy and defense costs.

US President Donald Trump has unilaterally announced an end (to at least the current chapter) of the ongoing Indo-US trade deal negotiations, with the deadline of August 1 looming large. India, Trump said in a post on Truth Social, will face 25% tariffs and a “penalty” for buying energy from Russia. The details of what this penalty will be have not been spelt out yet. Even if the penalty is more than 1%, India will be facing a higher tariff than what Trump announced on April 2. With the caveat that this may well be just another deal-closing tactic, and that India will be able to talk or buy its way out, what does this entail for the Indian economy and Indo-US relations?

Given the fact that India faced very little tariffs on its exports to the US, the 25%-plus tariff will hurt. (REUTERS)

The US is India’s largest export market. India’s goods exports to the US were $87 billion in 2024-25, which is almost 20% of the country’s total exports of $437 billion. Given the fact that India faced very little tariffs on its exports to the US, the 25%-plus tariff will hurt. Trade is not the only headwind here. If India is forced to divert its oil imports from Russia to the US or other countries, there could also be an increase in the cost of energy imports. Similarly, being forced to divert defence purchases from Russia is bound to become significantly more expensive.

Have the talks stumbled because India was steadfast in protecting its agricultural and dairy markets? Was it because of the US insistence that India diversify energy and defence equipment purchases? Or was it because India would not sweeten the pot, the way Japan and the European Union did, committing billions of dollars of investment in the US? In principle, these are valid reservations. The question is will India be worse off with these tariffs or would some tactical manoeuvring have led to a better outcome? Hopefully, the government will give some details in the ongoing Parliament session.

The short-term economic pain, especially on the economic sentiment front — expect a bloodbath in the capital markets on Thursday — notwithstanding, there is a longer-term question to be asked here if the tariffs persist (there is always a chance that they will be scrapped as whimsically as they were announced). What does Trump’s abrasive move entail for the future of Indo-US strategic ties? China, which by Trump’s own admission is also a big buyer of Russian oil, is being offered a much better deal than India because of the rare-earth supply leverage it has. Where does this leave things such as the Quad — a proposed strategic bloc against China — of which India is a part?

There are no easy answers to these questions. But one thing is clear: In Trump’s trade lexicon, and with due apologies to Marshall McLuhan, the deal is the art.