Trump’s new 25% Iran trade tariff: What it means for India’s economy and bilateral trade

New Delhi: India’s trade and economy could face significant strain after U.S. President Donald Trump announced a 25% tariff on any country doing business with Iran, a move that directly affects India’s longstanding economic ties with Tehran and raises fresh concerns for Indian exporters and importers.

In a Truth Social post on Tuesday, Trump declared that “effective immediately, any country doing business with the Islamic Republic of Iran will pay a tariff of 25% on any and all business being done with the United States of America.” The stringent tariff is part of a broader U.S. effort to tighten sanctions on Iran amid the country’s largest anti-government protests in years, which have reportedly led to more than 600 deaths, according to U.S. data.

How does Trump tariff hit India?

India is already coping with trade protection measures from Washington. With the newly announced tariff, India’s effective trade cost could reach 75%, combining a previously imposed 50% tariff and the new 25% penalty, when engaging in U.S. commerce while maintaining economic activities with Iran.

This latest policy places India in a challenging position because:

India and Iran are historically important trade partners, with New Delhi ranking among Iran’s top five trade destinations in recent years.

Indian exports to Iran include rice, tea, sugar, pharmaceuticals, staple fibres, electrical machinery, and artificial jewellery.

Imports from Iran to India include dry fruits, chemicals, and glassware, helping supply niche segments of the Indian market.

According to the Indian Embassy in Tehran’s data for the 2022-23 fiscal year, bilateral trade reached $2.33 billion, a 21.7% growth over the previous year. Indian exports were valued at $1.66 billion, while imports stood at $672 million, registering strong growth figures across key categories.

Trade trends show slowdown but established links

During April to July 2023, the India-Iran bilateral trade was $660.70 million, with exports at $455.64 million and imports at $205.14 million. Although this reflected a 23.32% year-on-year decline in total trade, it still showed ongoing economic engagement between the countries.

The imposition of a steep 25% trade tariff by the U.S. may worsen these trends by:

• Increasing costs for Indian companies exporting to the United States
• Complicating supply chains that depend on Iranian raw materials
• Reducing competitiveness of Indian goods in global markets
• Forcing Indian firms to reconsider economic exposure to Iran

What this means for Indian exporters and the economy

- The Trump tariff on India-Iran commerce could have a multi-layered impact on the Indian economy:

- Exporters may face higher barriers when selling to the U.S. if they continue Iranian trade connections.

- Import dependence on Iranian products, especially agricultural and chemical goods, may become more expensive or restricted.