When Indian Prime Minister Narendra Modi traveled to Washington in June 2023, the reception could hardly have been more grand. The White House rolled out the red carpet, staging a state dinner and a congressional address that underlined India’s rising stature in American foreign policy. Then-President Joe Biden embraced Modi with warmth, describing India as a “defining partner of the 21st century.”
Barely a year later, the landscape looks unrecognizable. As of August 27, 2025, most Indian goods entering the United States face a punitive 50% tariff — one of the steepest barriers in the global trading system. The penalties were imposed by President Donald Trump following a collapse in trade negotiations and an escalation of tensions over India’s continued purchases of discounted Russian oil.
The turnabout has jolted policymakers in both Washington and New Delhi. For U.S. officials who long championed India as a counterweight to China in the Indo-Pacific, the tariffs represent a stunning reversal. For India, whose economy relies heavily on exports to the American market, the shock threatens growth, jobs, and Modi’s political standing at home.
This is the story of how two democracies that once styled themselves as “natural allies” have stumbled into one of their sharpest trade conflicts in decades — and what it could mean for the balance of power in Asia.
Trump’s decision to slap tariffs on India is part of a broader strategy he has resurrected from his first presidency: wielding trade penalties as leverage to extract concessions. In April 2025, the White House unveiled sweeping duties on a host of trading partners, insisting that “America will no longer be taken advantage of.”
India initially hoped to secure an exemption through bilateral negotiations. But talks collapsed after Washington insisted New Delhi curtail its imports of Russian crude, which India has been buying in record quantities since Moscow’s invasion of Ukraine. The oil purchases, though vital for India’s energy security, clashed with U.S. sanctions policy.
By summer, frustration in the White House had boiled over. Trump imposed an additional 25% penalty on Indian goods — on top of the April tariffs — citing India’s defiance. The result: a combined 50% barrier that has effectively priced Indian exports out of the American market.
“The administration saw India as both a trade problem and a geopolitical challenge,” said Rick Rossow, Chair on India and Emerging Asia Economics at the Center for Strategic and International Studies (CSIS). “Trump was right that India is protectionist in many sectors. But the tools he’s chosen are blunt and deeply damaging.”
The U.S. is India’s single largest trading partner. In 2024, India exported $87 billion worth of goods to the American market — everything from textiles and jewelry to machinery and pharmaceuticals. That number is now expected to plunge.
The Global Trade Research Initiative, a New Delhi think-tank, forecasts that Indian exports to the U.S. will shrink by 40% within two years, potentially falling to $50 billion by 2026. Sectors like textiles, garments, and gemstone processing — which together employ hundreds of thousands — are bracing for collapse.
“Factories are already slowing production,” said a textile exporter from Tiruppur, Tamil Nadu. “Orders have dried up. If this continues, we’ll see mass layoffs.”
The U.S., by contrast, exported about $42 billion worth of goods to India in 2024 — less than half the flow in the other direction. That imbalance means India stands to lose far more in the tariff war.
Sushant Singh, a lecturer at Yale University, was blunt: “Under Trump, India has no leverage. The losses are mainly India’s.”
For Modi, the trade conflict has landed at a delicate moment. His Bharatiya Janata Party (BJP) had campaigned heavily on economic growth and the success of his “Make in India” program to boost manufacturing. The tariffs strike at the heart of that agenda.
“Manufacturing is only about 14% of India’s GDP,” Rossow noted, “so the macro-level impact may be limited. But politically, this is a problem. Modi promised jobs in factories, and now his biggest export market is closing its doors.”
The prime minister also faces criticism for mismanaging relations with Trump. Opposition leaders argue that Modi, once hailed for his personal rapport with foreign leaders, has failed to safeguard India’s interests.
The optics are particularly tricky because Modi had only recently celebrated his strong ties with Trump, calling the U.S. a “trusted partner.” The contrast between the pageantry of 2023 and the penalties of 2025 has fueled charges that his diplomacy is all spectacle and little substance.
While trade disputes were central, the real spark may have been geopolitical. Trump has repeatedly demanded that India cut off purchases of Russian oil, framing it as a test of loyalty. Modi resisted, arguing that India needs cheap energy to fuel development.
The tensions deepened further after the India-Pakistan conflict in May 2025. Trump claimed credit for brokering a ceasefire, while Modi told domestic audiences that Pakistan had “sued for peace” after India’s military response.
“That clash of narratives really angered Trump,” said Singh. “He wanted to showcase his deal-making skills. Modi wanted to showcase his toughness. The tariffs became a way for Trump to reassert control.”
The economic hit is severe, but experts warn the greater risk lies in geopolitics. For nearly two decades, successive U.S. administrations have courted India as a partner to balance China’s rise. Military exercises, intelligence sharing, and arms sales have all expanded under the banner of the “Indo-Pacific strategy.”
Now that partnership is in jeopardy.
“Trump is approaching China, India, and the Indo-Pacific very differently,” Singh observed. “If India concludes the U.S. cannot be trusted, it could tilt closer to China or Russia. That would be geopolitically disastrous for Washington.”
Gary Hufbauer of the Peterson Institute for International Economics added that U.S. companies may rethink plans to shift supply chains from China to India. “For a while India looked like the alternative manufacturing hub,” he said. “But with tariffs this high, it’s back to square one.”
Even the American education sector may feel the blow. Indian students constitute one of the largest groups of international enrollees at U.S. universities, contributing billions to the economy. Analysts expect a sharp decline in applications as goodwill erodes.
Curiously, prominent Indian-American leaders in Silicon Valley have been muted. Despite layoffs and tighter immigration rules under Trump, executives of companies like Google, Microsoft, and Adobe — all led by Indian-born CEOs — have avoided criticizing the White House.
“They’re scared,” Singh explained. “No one wants to antagonize Trump. They’re calculating that silence is safer than confrontation.”
This silence has frustrated some in India, who hoped diaspora voices would lobby against the tariffs. But the political climate in the U.S. has left little room for dissent.
In India, the tariffs hit hardest in regions where export industries dominate local economies. Towns in Gujarat that polish diamonds, garment hubs in Tamil Nadu, and jewelry clusters in Rajasthan all face uncertainty. Unions warn of mass unemployment.
“The jewelry industry could see a collapse,” said Ajay Sahai, director general of the Federation of Indian Export Organisations. “It’s not just about export numbers — it’s about livelihoods in entire communities.”
The government has floated relief measures, including subsidies and tax breaks, but economists doubt these will offset the U.S. tariffs. The World Bank projects India’s GDP growth could slow by nearly a full percentage point in 2026 if the standoff persists.
Politically, Modi is still dominant, but opposition parties sense vulnerability. Rahul Gandhi of the Congress Party accused Modi of “failing to protect India’s national interest” and “bending before foreign powers.”
Despite the harsh rhetoric, many believe a trade deal remains possible. Trump thrives on dramatic brinkmanship, often escalating before pivoting to declare victory. India, desperate to restore market access, may be willing to make concessions — such as modestly reducing tariffs on U.S. agricultural imports or pledging to buy more American energy.
“They want to give Trump a win,” Singh said. “This could happen any week, any month. That’s how the Trump administration works.”
Rossow agrees: “Both sides know the stakes. India is on the verge of becoming the world’s third-largest economy. The U.S. needs India for regional security. A strong partnership is still in both countries’ interests.”
The U.S.–India rift comes at a moment when global alignments are already shifting. China is pressing its influence across Asia, from the South China Sea to the Himalayas. Russia is courting partners to blunt Western sanctions. The European Union is grappling with its own economic troubles.
If Washington and New Delhi cannot repair ties, the consequences could reverberate far beyond trade statistics.
“Imagine an Asia where China is the undisputed leader, India plays a secondary role, and the U.S. is sidelined,” Singh warned. “That’s the geopolitical risk we’re talking about.”
For now, businesses and workers on both sides of the Pacific can only wait to see whether Trump and Modi will clash further — or strike a deal that salvages what remains of a partnership once hailed as historic.
The arc from pageantry in 2023 to punishment in 2025 underscores the volatility of international politics in the Trump era. What began as a celebrated alliance between the world’s two largest democracies now teeters on the edge of a trade war.
For Modi, the tariffs threaten jobs, growth, and his political brand. For Trump, they are a gamble that could yield concessions — or backfire geopolitically by driving India toward China.
