New Delhi: India is once again in the crosshairs of US trade policy, as President Donald Trump, in his second term, has revived his signature tariff strategy – this time under the banner of "reciprocal tariffs". On Wednesday, Trump announced a 25 per cent levy on Indian exports to the US, along with a vague but pointed “penalty” linked to India’s defence and energy ties with Russia.

The move came just days before a looming India-specific tariff deadline, dashing hopes that a trade agreement -- or even a limited “mini deal” --might prevent the duties from taking effect.

What are ‘Reciprocal Tariffs’?

In Trump’s terms, reciprocal tariffs are less about free trade and more about equal trade. The concept is simple: if a country imposes high tariffs on American goods, the US will match them. “If they charge us, we charge them,” Trump has often said, accusing other nations of taking advantage of the US’s historically low import duties.

India, with an average tariff rate of around 17% on US goods, has been a frequent target of Trump’s trade rhetoric. He has previously labelled India a “very big abuser” and the “tariff king” — a line of attack he returned to this week.

The build-Up: India’s efforts to avoid the tariff stick

Trade negotiations between India and the US were already underway before Trump’s second inauguration in January 2025. In February, Prime Minister Narendra Modi travelled to Washington for talks with Trump, aimed in part at heading off tariff action.

Despite the announcement of an ambitious ‘Mission 500’ to raise bilateral trade to $500 billion by 2030, Trump reiterated his dissatisfaction with India’s tariff structure and confirmed plans for reciprocal duties.

India, in a bid to avoid escalation, began lowering tariffs on select items like Harley-Davidson motorcycles and offered other signals of goodwill. Importantly, unlike China or the European Union, India chose not to retaliate with counter-tariffs.

Tariff talks in overdrive

Over the following months, Indian and American officials met frequently to break the deadlock on tariffs and work toward a broader trade deal. In early May, India proposed a ‘zero-for-zero’ arrangement on automotive parts, highlighting its willingness to negotiate.

In June, Commerce Minister Piyush Goyal visited the US for further discussions. Talks remained stalled over American demands for access to India’s sensitive dairy and agriculture sectors – an issue India has long resisted due to domestic sensitivities.

Still, there was optimism. India offered to increase imports of American oil and reduce its purchases from Russia, while backchannel negotiations hinted that a mini trade deal could be in place by August 1 -- the date when the India-specific 26% tariff was set to go live.

Sources even indicated that a framework deal might be ready by October.

The last-minute snag

That optimism evaporated on July 30, when Trump publicly confirmed that no agreement had been reached -- at least not before the August 1 deadline. This announcement effectively sealed India’s fate: it would now face the 25% reciprocal tariff and a still-unspecified penalty linked to its Russia ties.

The sticking point, according to officials, remained the US push for greater access to India's agricultural and dairy markets  a demand India has consistently opposed.

The twist: Tariffs, Russia, and a strategic message

While Trump’s use of tariffs as a negotiation tool isn’t new, the inclusion of a punitive element for India’s defence and energy engagements with Russia marks an escalation. Though the US has long voiced unease about India's Russian arms purchases, this is one of the first instances where trade penalties have been directly tied to geopolitical concerns.

India, for its part, has responded with measured restraint. In a statement issued Wednesday evening, the Ministry of Commerce and Industry said:

“The Government has taken note of a statement by the US President on bilateral trade. The Government is studying its implications. India and the US have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective.”

What next?

The 25% tariff will now apply to a broad range of Indian exports to the US, though the exact sectors affected are yet to be disclosed. India is currently assessing its next steps.

For India, the challenge lies in maintaining trade momentum with the US while safeguarding domestic interests -- particularly in agriculture — and preserving strategic autonomy in its ties with Russia.