Trump’s tariffs on India spare Russia ties for now, but threaten exports

India can breathe easy about its energy and defence ties with Russia since the US tariff notifications skipped the “penalty” US President Donald Trump had threatened it with on July 30. However, his 25 per cent tariff has left the country’s export sector in a big spot of bother.

The garment sector, which generates most jobs after agriculture, and has the US as its biggest export market, has already pressed the SOS button. Quick developments are expected to happen over the next few days when Union Commerce and Industry Minister Piyush Goyal meets representatives from major sectors.

That the headache of India's export sector will not go away anytime soon became clear when Trump slashed tariffs on Bangladesh, India’s rival in garment exports, from 37 per cent to 20 per cent in a notification on August 1.

Also read: Trump’s tariff hits Indian textiles: Tiruppur exporters under pressure

Its other competitors in the sector have also gained significant advantage — Vietnam and Sri Lanka at 20 per cent and Indonesia, Cambodia, and Pakistan at 19 per cent tariff. Only China, the biggest exporter in garment, is saddled with a 30 per cent tariff.

But first, the reliefs.

Penalty threat recedes, somewhat

Trump’s unspecified “penalty” for having trade ties with Russia threatened India’s energy and national securities. That threat has receded — for now at least.

India’s import of cheap Russian oil shot up from 0.2 per cent before the Russia-Ukraine war to peak at 45 per cent in June 2025 and fell to 33 per cent in July 2025, as per a business daily quoting data from maritime intelligence agency Kpler.

Also read: Trump’s sudden tariff hike stuns Surat and Mumbai’s diamond, textile hubs

The fall in July 2025 is attributed to massive cuts in import by oil PSUs such as Indian Oil, Hindustan Petroleum and others — pointing to the Indian government when it was trying to soften up Trump ahead of his August 1 deadline.

These oil PSUs with 60 per cent refining capacity stopped buying Russian oil from the spot market immediately after Trump announced an unspecified penalty. The trend is likely to continue despite the relief, as the 25 per cent tariff still hangs and Trump ordered nuclear submarines to move close to Russia on August 1. This will raise the cost significantly and put inflationary pressure.

According to Neelkanth Mishra, Axis Bank’s chief economist, the price gap between Brent and Russian oil has narrowed to $5 per barrel and $2–3 per barrel in landed cost, which means not buying the cheap Russian oil would cost India an additional $1–2 billion a year.

Also read: Why India should stand up to Trump, emerge a better economy

According to trade experts, Brent oil (closest to India benchmark) prices could go up to $80 per barrel — from $70 per barrel (August 2, 2025) due to a growing demand.

Defence reliance

India’s defence dependence is also massive — from fighter jets to S-400 missile systems used so effectively against Pakistan during Operation Sindoor.

According to the Stockholm International Peace Research Institute’s March 2024 report , Russia has been India’s main weapon supplier, though its share has slumped from 76 per cent in 2009-13 to 58 per cent in 2014-18 to 36 per cent in 2019-23. But Russia’s share is likely to go up as India considers buying more S-400 missile systems from it.

The other relief comes in the form of the US retaining the exempted-from-tariff categories for India. According to the Global Trade Research Initiative (GTRI), these are: finished pharmaceutical drugs, active pharmaceutical ingredients (APIs) and other key drug inputs; energy products such as crude oil, refined fuels, natural gas, coal, and electricity; critical minerals and a wide range of electronics and semiconductors, including computers, tablets, smartphones, solid-state drives, flat panel displays and integrated circuits.

Also read: US President Trump slaps 25 pc tariff plus penalty on India: What next?

Storm over export sectors

India’s merchandise exports to the US stood at 22 per cent in April-May 2025, as per the commerce and industry ministry’s data — up from 18.9 per cent in the corresponding period of 2024.

But India’s top exporting sectors to the US are facing a significant tariff hike (overall tariff went up from 3.3 to 25 per cent), derailing their price competitiveness against competitors.

According to an SBI research, the tariff went up by 23 per cent in electronics category (smartphones, PV cells with 18 per cent share of exports to the US), 22 per cent in gems and jewellery (11.5 per cent share), 25 per cent in pharmaceuticals (‘other medicine’ and antibiotics with 11.3 per cent share), 21 per cent in refined petroleum product (‘light oils and preparations’ and ‘other petroleum oils and oils obtained from bituminous minerals etc.’ with 4.9 per cent share), 16 per cent in textile articles (3.4 per cent share) and 24 per cent in auto and auto parts (‘parts and accessories’, ‘brakes and parts’ and ‘drive-axles with differential’ with three per cent), etc.

This means all the top exporting sectors of India will be hit badly. This would also imply more SOS calls from even capital-intensive PLI supported sectors such as electronics, auto and pharmaceuticals — apart from labour-intensive gems and jewellery and textiles.

Problems for MSMEs

Exporting sectors, particularly MSMEs (big job creators), are facing another problem.

Reports suggest that banks may adopt a risk-averse approach to credit to exporting MSMEs to avoid stressed assets. If that happens, pressure would mount on the Indian government to announce relief packages and the RBI to consider rate cuts (monetary policy meet is scheduled for August 6) to keep the export sectors afloat.

Consider this. Indian merchandise exports to the US alone stood at $119.7 billion in FY24 (for which the full fiscal data is available) — that is, 3.3 per cent of the GDP in FY24 ($3,598.9 billion at current prices and dollar exchange rate of Rs 84).

Since the 25 per cent tariff will hit all top exporting sectors, there would be massive business and job loss — pushing up unemployment and pushing down wages. The net effect will be a lower demand in the economy.