On August 27, President Trump’s punitive tariff on Indian exports came into effect, raising duties from 25 to 50%. This tariff is a tax the US government charges on goods coming in from other countries. It is collected at the border and makes imported products more expensive in the American market. While pharmaceuticals and some electronics were exempt, crucial sectors such as textiles, gems and jewellery, furniture, machinery, chemicals, leather, shrimp, and metals were badly hit. India had exported goods worth 87 billion dollars to the United States in 2024–25, its largest market, but projections for 2025 suggest a fall to about 50 billion dollars, a reduction of nearly 36 to 37 billion. Since every billion dollars of exports support around 25,000 jobs, an estimated 9-10 lakh jobs are now at risk, particularly in labour-intensive hubs including Surat, Tiruppur, Noida, Vizag, Jodhpur, Agra, and parts of Karnataka.
Economists caution that the impact could extend further. Goldman Sachs’ Santanu Sengupta has warned that prolonged tariffs may reduce India’s growth rate to below 6% as rivals such as Turkey and Thailand can fulfil American demand. The Federation of Indian Export Organisations has reported shutdowns in Tiruppur, Delhi, and Surat, while exporters are rapidly losing ground to competitors in China, Vietnam, Cambodia, and the Philippines. The strain is also visible in financial markets, where the Sensex fell by more than 2% in late August.
The US has declared a tariff war globally. A baseline tariff of 10% was placed on nearly all US trading partners, with 57 countries facing additional reciprocal tariffs of up to 50%. This drove the overall average tariff rate from 2.5% in January to 19.5% by September 2025, the highest since 1935. Countries were sorted by trade balance and political considerations. The first group, including the UK and Australia where the US runs a trade surplus, faces the minimum 10% duty. A second group of deficit partners such as the European Union, Japan and South Korea, accepting US demands, face 15% tariffs. Others were targeted based on how much can be extorted and for geo-political reasons. Such as, South Africa at 30%, justified by Trump and Musk’s claims of a ‘genocide of whites’. China was settled at 30% despite being the main economic competitor. The harshest tariffs of 50% were imposed on India and Brazil, with the latter hit despite a US surplus in order to weaken the Lula government and support pro-US opposition.
Though tariffs may take some time to fully affect prices as companies had resorted to frontloading by stockpiling goods in anticipation, the impact is already visible. In August 2025, US inflation rose to 2.9%, the highest since January, as businesses began passing tariff costs to consumers. The job market is slowing, with negative job growth and unemployment rising to 4.3%. Lower-income households are hit hardest since they spend more of their budget on imported goods. Prices of imports are now 5% higher than before tariffs, while domestic goods have risen 3%. Everyday items such as furnishings, linens, tools, toys, and sporting goods are set to become costlier. By imposing tariffs, the US has added to the burden on ordinary Americans under the guise of ‘Make America Great Again’, disregarding that he returned to power on the promise of addressing the rising cost of living for the common people. Let us now examine the reasons, both stated and unstated, behind the tariff mayhem.
The first reason cited by the Trump administration for imposing tariffs is the reduction of the trade deficit. A trade deficit occurs when a country’s imports of goods and services exceed its exports. By 2024, the US goods trade deficit with India had surpassed $45 billion. This stance is linked to Trump’s election promise of bringing industrial production back to America, encapsulated in the slogan MAGA. By making foreign goods more expensive through tariffs, the expectation is that domestic production in the US would be encouraged. However, this is a simplistic assumption that ignores the real reason behind the shift of industries out of the US. That is, relatively cheaper labour in other countries at comparable levels of productivity. Moreover, with the dollar as a reserve currency, sustained US deficits have been the historical mechanism for distributing dollars worldwide.
Trump borrows heavily from a past when the US was a manufacturing superpower with a fast-growing market, without recognizing that he cannot recreate those conditions. Finance capital has long since travelled beyond. Nostalgia for a glorified past is used by reactionary rulers to mask present hardships, amass large fortunes for themselves, and keep the working masses clinging to imaginary greatness.
Dangling access to US markets as bait, Trump seeks to force other countries to buy American goods and services. There is nothing truly reciprocal in his so-called ‘reciprocal tariffs’, they amount to plain blackmail of weaker nations. Countries dependent on US markets for exports, or reliant on American capital and technology for their economies, are especially vulnerable to such pressure. In the case of India, the underlying aim is to compel to further open the markets, particularly in sectors like agriculture and dairy, to US exports.
The second reason put forward by the Trump administration is that tariff revenues will reduce the fiscal deficit, thereby helping to bring down government debt. Fiscal deficit is the gap between a government’s total expenditure and its total revenue (excluding borrowings). However, in line with the MAGA slogan, after Trump came to power, he implemented large tax cuts as a gift to corporations and the super-rich. According to some estimates, these tax cuts would add nearly $5 trillion to US debt over a decade. One of the key objectives of tariffs, therefore, is to increase government revenue in order to offset the cost of tax cuts that disproportionately benefit the wealthy, while ordinary people bear the burden.
The third reason cited by the Trump administration for imposing an additional ‘punitive’ 25% tariff is India’s continued reliance on discounted Russian crude oil imports and the subsequent resale of refined products, which Washington views as undermining US-led sanctions following the Russia–Ukraine proxy war. However, India had purchased Russian crude with tacit encouragement from the United States, refining it through Reliance and other companies for exporting it to the European Union, which could not have directly sourced such volumes from Russia due to sanctions. This arrangement helped keep global oil prices in check, a fact well known to Washington. US officials themselves repeatedly acknowledged India’s role in stabilizing global markets. Ambassador Eric Garcetti admitted that “the US wanted somebody to buy Russian oil … to ensure prices did not go up globally”, while Treasury Secretary Janet Yellen noted that Washington was “happy for India to continue buying as much Russian oil as it wants”. Moreover, China is the biggest buyer of Russian energy, bigger than India; and yet the tariff rate against most imports from China is lower than 50%. The reason for this differential treatment lies in the fact that Trump believes India to be a pushover while China is not.
The fourth reason, though not yet an official policy position, one raised repeatedly by Trump is India’s growing visibility within BRICS. The US is uncomfortable about India’s participation in initiatives that promote non-dollar payment systems, perceiving them as a direct threat to the dollar’s dominance. This concern is rooted in the unique privilege the US enjoys as the issuer of the world’s primary reserve currency. When the US Central Bank prints more bills, those new dollars are used to purchase goods and services from cheaper countries like India. This mechanism effectively exports the potential for inflation, the dollars flow overseas to pay for real products instead of overheating the domestic economy. In essence, the global economy absorbs this new liquidity by supplying tangible goods, thereby subsidizing American consumption and price stability. This arrangement also helps keep the cost of debt low for the US. Any challenge to the dollar’s status directly threatens this ‘Exorbitant Privilege’.
Trump’s declaration of the end of multilateralism and the irrelevance of fora like the World Trade Organisation has pushed countries into separate negotiations, marking a shift in the global economic order. This comes after decades of imperialist globalization, imposed by the US-led bloc following the end of socialism in China and earlier in Russia with the dissolution of social imperialism. In a unipolar world, globalization enabled the free flow of capital to maximize profits, but it failed to address uneven capitalist growth or secure lasting US dominance. Setbacks to the imperialist war of occupation in Afghanistan and Iraq backed by financial bubbles and the bursting of the bubble resulting in the explosion of the financial economic crisis beginning from 2008, exposed the limits of US hegemony and accelerated the decline of unipolarity, thus beginning an era of protectionism.
Neoliberalism, with its emphasis on profit maximization through production relocation to low-wage economies, tax cuts, and deregulation, further enriched capitalist owners while technological monopoly and control of intellectual property helped imperialist capital squeeze higher and higher profits from the production in the third world. Trump’s call to bring production back to America will largely mean a higher cost of production amidst increasing global competition. Many countries have accepted unfavourable terms with the USA to avoid turbulence in their economies, but it does not mean that they would not take counter-measures that include increasing trade with other countries and their own blocs. The call to bring production back to America will largely remain a smokescreen to force other countries to increase imports from the USA.
Trump’s tariff escalation laid bare the hollowness of Modi’s much-publicised friendship with Washington and the utter weakness of India’s response. Despite Modi’s grandstanding with slogans like ‘MIGA’ and spectacles such as ‘Howdy, Modi’ and ‘Namaste Trump’, India was repeatedly humiliated. India’s ruling establishment, desperate to clinch a deal, found itself in a difficult position as Washington pressed for further market opening in agriculture and dairy sectors that employ more than half the workforce and are critical for food security. Having already burnt its hand with the three Black Farm Laws, the Modi government lacked room to concede but also failed to mount an independent alternative strategy. Opposition parties criticized mishandling of talks yet avoided addressing imperialist dependence, while slogans like ‘Atmanirbhar Bharat’ and ‘Make in India’ ring hollow against rising import dependence and declining manufacturing. Instead of standing firm, India is hoping to strike a deal with Trump through softer concessions and look for other imperialist economies to be dependent on.
