The already-strained U.S.-India trade relationship took another hit yesterday when President Donald Trump slapped a crushing 50% tariff on Indian imports. This comes on top of an earlier 25% penalty imposed over India’s ongoing oil and weapons deals with Russia, according to BBC reports.
These steep tariffs have pushed India into an uncomfortable position alongside other nations facing the harshest U.S. trade restrictions. The timing couldn’t be worse, as India had been making real progress in becoming a key trading partner with America.
Indian reaction
However, Prime Minister Narendra Modi isn’t backing down. He’s doubling down on his «Make in India» campaign, encouraging local shopkeepers to proudly showcase Indian-made products and asking citizens to support domestic brands. His government is also sweetening the deal with tax breaks, including a major overhaul of the complicated goods and services tax (GST) system that could inject $20 billion into the economy. This follows an earlier $12 billion income tax cut from the beginning of the year.
These tax cuts are designed to boost consumer spending, especially in key sectors like automotive, clothing and construction materials — the bread and butter of India’s domestic economy. The lower taxes might also give India’s central bank more flexibility to reduce interest rates, making it easier for both businesses and consumers to borrow.
Potential outcome
There’s a bright spot: S&P Global has upgraded India’s credit rating, showing that international investors still have faith in the country despite the trade tensions. But it’s not all smooth sailing. Economic growth has taken a hit, and this week’s failed trade talks with the U.S. suggest the rift isn’t healing anytime soon. With India standing firm on its Russian energy deals, these unprecedented 50% tariffs could fundamentally change the U.S.-India economic relationship for years to come. room to cut interest rates further, making loans cheaper for businesses and consumers alike.
