India’s Manufacturing ambitions at risk from new US tariffs

Donald Trump’s decision to double tariffs on Indian goods — raising them to as high as 50% — officially took effect today, heightening trade tensions between the world’s two largest democracies. The move threatens to undermine India’s growing role as a potential manufacturing alternative to China, particularly in industries where global supply chains are already under pressure.

Why did the US double tariffs on imports from India?

The United States has doubled tariffs on imports from India, raising them as high as 50% — one of the steepest rates Washington imposes on any major trading partner. This escalation comes just weeks after President Donald Trump introduced a baseline 25% tariff on Indian goods, a move that risks straining ties with the world’s fifth-largest economy and pushing U.S. consumer prices higher.

Washington’s pressure tactics

The new tariffs are mostly meant to punish India for continuing to buy Russian crude oil, which Trump argues indirectly helps finance Moscow’s war in Ukraine. But New Delhi sees the move as unfair. Indian officials point out that other countries, including China — the single largest buyer of Russian oil — face lighter penalties, with tariffs at 30%. Europe and even the U.S. itself also continue to trade with Russia in fertilizers and chemicals, underlining the inconsistency.

India has already signaled it may retaliate. 

Earlier this month, Prime Minister Narendra Modi suggested Trump’s “secondary sanctions” could force New Delhi to reassess its global alliances. Modi’s upcoming trip to China, his first since 2018, highlights that possibility. This follows a recent meeting in New Delhi between Chinese Foreign Minister Wang Yi and Modi, during which both acknowledged "improvements" in their strained ties. Currently, China is India’s second-largest trading partner, with bilateral trade reaching $118 billion in 2023.

Why India won’t give up Russian Oil easily

India’s reliance on Russian crude is not a political choice but an economic necessity. 

With a population exceeding 1.4 billion and an economy growing at one of the fastest paces globally, India is now the world’s third-largest oil consumer. Demand is set to surpass even China’s by 2030, according to Reuters. Rising household incomes have boosted car and motorcycle ownership, sharply increasing gasoline needs.

Russian crude currently accounts for about 36% of India’s imports, making Moscow its top supplier in the first half of this year, data from trade intelligence firm Kpler shows. Crucially, India buys this oil at steep discounts — prices that Middle Eastern suppliers or Western producers are unlikely to match.

“India’s continuing purchases are a purely economic or commercial decision,” explained Amitabh Singh, associate professor at Jawaharlal Nehru University’s Centre for Russian and Central Asian Studies. The challenge is structural: India imports 80% of its oil needs, and its domestic production falls far short.

Other U.S. policies have narrowed India’s choices further. Trump previously forced New Delhi to halt oil imports from Iran and Venezuela by threatening sanctions. Before that ban, India was one of Iran’s biggest buyers, importing up to 480,000 barrels per day according to Reuters. Cutting off Russian oil now would leave India without viable, affordable alternatives.

The refining loophole

Adding to the tension is India’s role as a global refining hub. 

Some of the Russian crude it imports is processed domestically and then exported abroad. Because sanctions apply only to Russian-origin crude — not refined products — India has become the world’s second-largest exporter of petroleum products, shipping $86.28 billion worth in 2023, according to the National Bureau of Asian Research (NBR). 

Major buyers include the U.S., the UK, and Europe, according to the Centre for Research on Energy and Clean Air (CREA). In other words, Western nations are indirectly consuming fuel made from Russian oil through Indian refiners.

India’s Manufacturing ambitions at risk from new US tariffs

India has become increasingly important to American businesses and consumers. ​​As companies have sought alternatives to China, U.S.-India trade has surged over the last decade. In 2024, bilateral goods trade reached $129 billion, with the U.S. importing $87 billion from India and exporting $42 billion, resulting in a $45.8 billion trade deficit for the U.S. according to U.S. Census Bureau data.

Much of this growth was driven by shifting supply chains. As tariffs on China rose during Trump’s first term and again earlier this year, American businesses turned to India for pharmaceuticals, smartphones, apparel, and communications equipment. Smartphones alone made up $10.6 billion of U.S. imports from India last year (a rise of 90% in FY24-25), while diamonds added $4.9 billion, and medicines $4 billion. On the other side, India has become a major buyer of American oil, gas, chemicals, and aerospace components.

Tariffs threaten both sides

Trump’s decision to double tariffs on Indian imports to 50% could put this trade relationship under strain. The new tariffs could affect a significant portion of India’s exports to the U.S. — estimated at nearly 55% by exporter groups—and span from electronics to medicines. If they are not reversed, the tariffs risk making Indian products uncompetitive and could pave the way for competitors like Vietnam, Bangladesh, and even China to take their place.

For American businesses, the fallout is twofold. First, higher tariffs mean steeper costs on everyday imports such as clothing, smartphones, and generic pharmaceuticals — products U.S. consumers rely on for affordability. Second, if India retaliates, industries like energy, chemicals, and aerospace could face barriers to one of the world’s fastest-growing consumer markets.

Manufacturing dreams under pressure

The timing is particularly damaging for India’s long-term ambitions. Prime Minister Narendra Modi has poured resources into expanding manufacturing under the “Make in India” campaign, aiming to position the country as a credible alternative to China in global supply chains. But the strategy rests heavily on access to cheap energy and stable export markets.

Energy remains India’s Achilles’ heel. The country imports 80% of its oil needs, and Russian crude — currently making up 36% of imports — offers the discounted prices necessary to keep factories running and households supplied. With Trump penalizing New Delhi for buying Russian oil, India faces a difficult choice: either continue sourcing cheap energy and risk U.S. tariffs, or turn to costlier alternatives that undermine its competitiveness.

A risk for US consumers too

For Washington, the policy could backfire. By squeezing India just as it is emerging as a manufacturing base, the U.S. risks slowing the diversification of supply chains away from China. That could leave American businesses with fewer options, higher costs, and greater dependence on the very country tariffs were designed to counterbalance.

In the near term, U.S. consumers may feel the pinch through higher prices on goods that India supplies affordably. In the longer term, America risks alienating one of the only countries capable of becoming a large-scale production hub outside China.

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