Tensions between the US and India stem from a series of trade disputes and geopolitical tensions. In July 2025, President Trump announced a 25% tariff on Indian exports, citing India’s continued purchase of Russian oil and arms, high tariffs on US goods, and non-tariff trade barriers. However, the latest twist in a matter that New Delhi believed it had resolved was the announcement of an additional 25% tariff on Indian imports last week, making a hefty 50% penalty if India continues its trade with Russia.

Analysis by Care Ratings, an Indian credit rating agency, anticipates that the direct export loss from these higher tariffs could be around 0.3%-0.4% of India’s GDP in FY2026, noting that India’s domestic-driven economy should provide some cushion. Additionally, the ratings agency indicated that India’s services exports remain outside the scope of these tariffs and should continue to support the external sector. Reciprocating the acrimony, Prime Minister Modi reiterated his commitment to India’s “Make in India” initiative, aiming to boost local consumption and reduce dependency on imports, probably based on these readings. In the meantime, negotiations are underway for a new bilateral trade agreement with the United States, focused on sectors that remain outside of the tariff list.

Imagine how a 50% tariff will hit India’s more or less $80 billion annual exports to the US, which account for over 17% of its total export market. Sectors like pharmaceuticals, textiles, and IT services will face sharp cost spikes and loss of competitiveness against export competitors like Vietnam and China. This move puts real pressure on New Delhi’s trade strategy as financial giants, including Goldman Sachs and Nomura, warn that such tariffs could further slow India’s already weakened GDP growth, potentially cutting 0.3 to 0.6 percentage points off the forecast. While India’s growth outlook for 2025 remains unchanged for now, the next few weeks of negotiations with Washington remain crucial.

It’s not just the economic realm where the tariffs reverberate; for India, the geopolitical context of these trade tensions is equally critical. The United States remained notably distant in its response to military escalation between India and Pakistan in May 2025, following a deadly terrorist attack in Kashmir. Its reluctance to intervene or even express support for India’s blaming Pakistan for the terrorist attack created a sense of abandonment in New Delhi, sparking concerns about US reliability as a strategic partner. India’s perceived sense of growing US rapprochement with Pakistan, which includes renewed trade talks and President Trump’s vocal interest in mediating the Kashmir issue, further raised questions about Washington’s South Asia policy.

As India’s economic and security interests increasingly intertwine, the country now faces mounting pressure to recalibrate its U.S. vs. China strategy, with Russia acting as a moderating variable in this new equation, influencing the strength or direction of India’s relationship with the other two countries. Reports suggest Modi is expected to attend the SCO summit in China, signaling India’s policy of diplomatic diversification. Some fear strengthened economic ties between India, China and Russia, bypassing dollar trade, would become a catalyst for weakening US currency influence.

Although the India-US relationship has gone from strength to strength over the past three decades, with growing cooperation in strategically important areas, an inherent tension remains: India’s commitment to nonalignment clashes with the US preference for a more aligned strategic partnership. As analysts point out, India does not understand alliances, and the United States does not understand nonalignment. This disconnect limits the extent to which the two nations can align on certain issues. However, with intensifying geopolitical polarization, India will inevitably be forced to take sides, which may aggravate the dilemma for New Delhi, given its economic dependence on China—and military reliance on Russia.

Based on the above argument, there’s a chance that Trump’s “Madman Theory,” which asserts that unpredictable actions can force the opponent into compliance, may not be effective when applied to India—a nation that prides itself on its strategic autonomy. Some argue that by imposing tariffs on India, the United States may not only risk the economic cooperation that has been key to its interests but also drive India towards greater alignment with Russia and China. That is why Indian NSA Ajit Doval’s visit to Moscow, focusing on strengthening India’s defense and energy ties, is being reported as India’s strategic maneuver in the face of mounting pressure from the United States.

In today’s world of diplomacy, power is often wielded with both a kind word and a weapon. This duality forms the backbone of President Trump’s strategy for international relations, now visible in his dealings with India. In response, once close to Washington, Modi is now reviving “strategic autonomy,” re-engaging Russia, Brazil, and cautiously reopening dialogue with China following years of strained ties. Likewise, as India diversifies its export markets—targeting the EU, UK, UAE, and Australia—its dependence on the US market is likely to decrease. India may also choose to retaliate with reciprocal tariffs or even reinstate a digital tax on US tech firms; however, either option could further escalate the situation. Then again, India’s position in global supply chains, especially in critical sectors like pharmaceuticals and semiconductors, gives it significant leverage in these negotiations.

A more optimistic approach proposes that, despite tensions, the relationship between the US and India is anchored in shared interests. From space cooperation—like the 2025 NASA-ISRO collaboration on an Indian astronaut mission—to Quad cooperation, this partnership has weathered many challenges. Public sentiment in both countries remains relatively positive, suggesting that, despite trade disruptions, the larger strategic and technological collaboration may be enough to prevent a full breakdown.

Looking ahead, India’s need for US markets will drive negotiations, but its commitment to strategic autonomy will prompt her to put more focus on domestic manufacturing and diversifying trade partnerships, as both sides work towards a bilateral trade agreement. However, the current tariff dispute reflects a unique and broader shift in the dynamics of global diplomacy, where hard power collides with strategic interests. The resolution of this trade dispute will depend on the ability of both nations to balance their economic needs with their geopolitical priorities. The US and India might find common ground, but the road to this resolution will surely be a rocky one