On July 31, 2025, US President Donald Trump issued an executive order imposing a 25% reciprocal tariff on imports from India, effective from August 1. And, barely a week later, he imposed an additional 25% tariff on Indian goods, raising the total tariffs on certain goods to as high as 50%, among the steepest faced by any US trading partner.
These actions follow months of US-India trade negotiations and were motivated by trade imbalances and India’s continued import and resale of Russian oil, which Trump has criticised as showing support for Russia’s war in Ukraine. The new 25% penalty tariff comes into force 21 days after the order, meaning it becomes active on August 27, 2025.
Shipments already in transit before then and cleared before September 17 are exempt.
Higher tariffs usually mean lower profits — but who bears the brunt depends on how the cost is shared between the exporter, importer, and end consumer. Here’s a detailed look at Trump’s new tariff structure, how it works, and how it impacts Indian industry.
The background
On April 2, 2025, President Trump announced the Liberation Day tariffs. This included a baseline 10% reciprocal tariff on all imports, effective April 5, as well as higher country-specific rates (including India, at around 26–27%), which were planned to go into effect April 9, but suspended until early July to allow negotiations. During the suspension period, most countries, including India, only faced the 10% baseline tariff.
On July 31, 2025, Trump signed a new executive order, “Further Modifying the Reciprocal Tariff Rates”, which set India’s uniform rate at 25%.
A reciprocal tariff is one that works both ways, ie, it is a trade policy where one country sets its import taxes (tariffs) to match or mirror the tariffs another country places on its exports. The purpose of reciprocal tariffs is to make international trade fair, and to protect domestic industries from what is seen as unfair trade practice by foreign nations. And, of course, to manoeuvre other nations to lower their tariffs.
Keeping all of the above in mind, US President Donald Trump signed the executive order and implemented a 25% reciprocal tariff on several countries, including India, arguing that these countries charged higher tariffs on American products than the US did on theirs. The goal was to get those countries to lower their tariffs or face matching rates. And now, India faces an additional 25% tariff.
How the 25% + 25% tariff works
A tariff is a tax on imports, calculated as a percentage of the product’s value, typically the “declared customs value,” also known as CIF, which stands for Cost, Insurance, and Freight, or the price of the product plus shipping and insurance to the destination.
US President Donald Trump’s August 6th executive order imposes an additional 25% ad valorem tariff on Indian goods, citing India’s continued purchase of Russian oil as a national security threat. This is on top of the 25% reciprocal tariff previously introduced at the end of July (w.e.f August 7), bringing the total tariff rate to 50% for most Indian exports to the US.
An ad valorem tax (according to value in Latin) is a tax that is based on the value of the goods being sold. If a product costs $100, and it carries an ad valorem tax of 10%, then $10 is paid extra as tax. Unlike a fixed tax (for example, $5 for every toy, no matter how expensive), an ad valorem tax is a percentage of the price of the product. The more expensive the item, the higher the tax.
So, Trump’s latest tariff applies as an ad valorem tax of 50% on the declared customs value of eligible Indian imports.
Here’s how it works.
- Indian exporters send a product to importers in the United States at a certain price, called the Free On Board price.
- The US Customs departments will calculate the product’s duty based on the CIF (Cost, Insurance, Freight price), which, like we stated above, is the price of the product plus shipping and insurance to the US port.
- Usually, the Customs Value and the CIF are the same.
- The Tariff (50% in India’s case) is levied based on the Customs Value.
- The Final Landed Price consists of CIF/Customs Value + Tariff + any other handling charges, duties, taxes and/or domestic logistics fees.
- The final US Market Price or Retail Price will include the entire import cost mentioned above, along with additional margins added by the seller.
And this is what makes Indian goods more expensive to importers and sellers – and therefore, less attractive.
Key Price Chain Stages
| Stage | What It Means | Who Pays/Controls |
| 1. FOB (Free on Board) | The price of the goods at the Indian port, before shipping. Includes production cost, profit, and local logistics. | Paid by US importer to Indian exporter |
| 2. CIF (Cost, Insurance, Freight) | FOB + shipping + insurance to reach the US port. | Still paid by the US importer (directly or indirectly) |
| 3. Customs Value | FOB + shipping + insurance to reach the US port. | Declared at US border |
| 4. Tariff | 50% import tax applied to customs value/ CIF value | Paid by US importer to US government |
| 5. Final Landed Price | CIF + Tariff + other handling, duty processing, domestic logistics | The cost of getting the goods ready for US retail |
| 6. Final US Market Price | Retail price, includes import cost + marketing + margins | Paid by US consumers |
- The FOB of a product sent from India is $100.
- The cost of shipping and insurance (CIF) is $10.
- The Customs Value, therefore, is $110.
- A 50% tariff is then applied to that Customs Value, meaning $110+$55 = $165. So, before the product can be sold in the US, the importer must pay $110 + $55 = $165 total just to receive it.
- The final landed price includes the CIF + Tariff ($165) + any other additional fees like handling, processing and US domestic logistics costs. These include fees like MPF (Merchandise Processing Fee), HMF (Harbour Maintenance Fee), etc.
- Let’s say all those additional fees come up to $50. The final landed price, then, is $165 + $50 = $215.
- US importers pay $215 to receive the product even before they sell to retailers and consumers.
- That added cost may be passed on to consumers, making the product much more expensive.
A snapshot of India’s exports to the United States
So what do Indian companies export to the United States? And how will the tariffs impact the numbers and profits? Here’s a snapshot of what it looks like, based on data from Global Trade Research Initiative, from a report published on Bloomberg News.
In fiscal year 2024–25, key Indian exports to the United States — including smartphones, pharmaceuticals, diamonds, machinery, and textiles — face significant tariff impacts under a proposed 50% US tariff regime. While smartphones and pharmaceuticals currently benefit from temporary exemptions, other major categories such as diamonds, gold, machinery, and steel could see total tariffs exceeding 50%.
Textiles and apparel are particularly vulnerable, with total tariffs on knitted apparel reaching up to 63.9%, with the 50% and pre-existing MFN (most favoured nation) tariffs. Vehicles and parts face a more moderate total tariff of 26%, while smaller export categories like carpets and furniture exceed the 50% mark.
These tariff increases could render a broad range of Indian exports less competitive in the US market, especially for those with a high dependency on US demand—such as carpets (58.6%), textiles (48.4%), and furniture (44.8%).
How the new tariffs impact exporters, importers, and consumers
Tariffs are typically paid by importers, and go to the US Customs and Border Protection (CBP) department. Economists, though, often say that a portion of the tariff ends up being borne by the consumers, since sellers may hike up the final retail prices of those imported goods to safeguard their interests.
The additional tariff would mean a steep 50% duty on key Indian exports like textiles, gems and jewellery, auto parts, and seafood, hitting major job-creating sectors. Pharmaceuticals and electronics (including iPhones) are exempt for now. However, if the demand for a product is inelastic — for example, essential life-saving medicines — the higher price will likely be absorbed by the importer or end consumer without complaint.
But the key sectors mentioned above are particularly vulnerable, especially since the higher tariffs give Indian exporters a competitive disadvantage compared to suppliers from Vietnam and Bangladesh, which face much lower US duties. According to the Global Trade Research Initiative (GTRI), excluding pharmaceuticals, electronics, energy products, Indian exports to the U.S. could drop by about 30%, from $86.5B to $60.6B in FY 2026. Experts warn these tariffs could slash US bound exports by up to 40–50%, and could even shut Indian exporters out of the US market entirely.
To put it simply: Indian exporters lose out because the tariffs make their products more expensive to US importers, since they have to pay extra taxes to get Indian goods into the US market. Importers may choose to replace Indian suppliers with competitors from other countries that don’t have such high tariffs. And for the Indian export items that do make it across with higher tariffs — well, those goods might get far more expensive for everyday consumers, if the importer/seller decides to hike up the final retail price of the product.
The new tariff plan is no doubt a sweeping trade escalation, ostensibly triggered by geopolitical friction over India buying Russian oil and signalling a rift in Indo-US economic relations. And these rates hit nearly all sectors, with engineering, textiles, jewellery, and footwear bound to face steep headwinds. While Indian exporters look to diversify into new markets, US importers may also rethink their suppliers as Indian goods become more expensive.
However, there’s a little over two weeks left before the tariffs come into effect — and with trade negotiations still ongoing on, both sides have time to reassess the tariffs and possibly, bring them down.
Sources
NDTV: Trump Doubles Tariff On India To 50%, Centre Responds
BBC: Trump orders India tariff hike to 50% for buying Russian oil
Bloomberg: Modi-Trump standoff could hand China the prize
Economic Times: What is a tariff, who pays it and why does Trump favour it? A complete guide