SURYATHEJUS R, UNIVERSITY OF DELHI
⮞ Strategic Exemptions: Understanding the U.S. Approach to Select Indian Imports.
⮞ Navigating Healthcare Risks Amid U.S.–India Trade Strains
On August 6, 2025, U.S. President Donald Trump intensified trade restrictions on India, announcing an additional 25% duty on a broad range of goods. This increase pushed the overall tariff burden on many products to 50%, marking one of the sharpest hikes in U.S.–India trade relations in decades. The announcement came just five days after an initial 25% tariff was introduced on August 1, 2025—a step widely interpreted as Washington’s response to New Delhi’s ongoing imports of Russian crude oil despite global sanctions and the backdrop of the Russia–Ukraine conflict.
These new rates are now the highest the United States applies to any major trading partner, exceeding even the peak tariff levels seen during the U.S.–China trade disputes of recent years. India, which exports approximately $87 billion worth of goods annually to the American market, has been particularly affected in sectors such as textiles, gems and jewellery, marine products, organic chemicals, automobiles, and various agricultural commodities—all of which are now facing the full 50% duty.
Yet, the tariff measures are not universal. Four significant categories—pharmaceuticals, electronics & semiconductors, energy products, and critical minerals—remain exempt, continuing to enter the U.S. market without any import duty. These sectors are not only central to bilateral trade but also strategically sensitive. India supplies close to half of all generic medicines used in the United States, contributes to global semiconductor assembly chains, plays a role in energy-related raw material supplies, and provides certain critical minerals essential for renewable technologies and defense manufacturing.
This selective targeting leaves open a provocative strategic scenario: if India chose to apply export restrictions in these zero-tariff sectors as a form of diplomatic pressure, could the United States cushion the impact without major disruption to its healthcare, technology, and energy systems? Or would such a move reveal deep dependencies that tariffs alone cannot mitigate? Why Certain Indian Imports Escaped the Tariff Hike
The recent U.S. decision to raise tariffs on a wide range of Indian imports—covering sectors such as textiles, apparel, jewellery, leather, and marine products—has caused immediate concern within India’s export-driven industries. These measures are expected to create short-term turbulence in these sectors, with potential job losses, reduced export earnings, and temporary supply chain disruptions.
However, the broader picture suggests that the long-term economic damage to India may be limited. New Delhi has been actively pursuing bilateral and multilateral trade agreements to diversify its export markets, reducing dependency on the United States. A recent example is the Comprehensive Economic and Trade Agreement (CETA) signed between India and the United Kingdom, which aims to ease tariffs, expand market access, and encourage investment flows between the two economies. Such deals can help absorb the shock of sudden tariff escalations.
Yet, the more intriguing aspect of this tariff policy lies in what was excluded. The U.S. deliberately left certain critical categories—pharmaceuticals, electronics & semiconductors, energy products, and specific critical minerals such as lithium, cobalt, and nickel—untouched. The rationale is straightforward: imposing steep duties on these items would harm U.S. economic interests more than it would pressure India.
For instance, in the case of pharmaceuticals, India accounts for roughly 47% of the U.S. generic drug market. Replacing this supply in the short term would not only be logistically challenging but would also drive up healthcare costs and risk shortages of essential medicines. Similarly, Indian contributions to the electronics and semiconductor ecosystem, as well as its role in supplying minerals vital for renewable energy technology and defense manufacturing, are not easily substitutable without substantial cost and time investments.
This selective approach reveals an important dynamic: while tariffs are being used as a tool to pressure India in certain sectors, the U.S. is equally mindful of its own strategic dependencies. At the same time, the exemption of these high-value categories gives India potential leverage. Should New Delhi choose to restrict or slow exports in these zero-tariff sectors, it could create significant disruptions in the U.S. economy—a scenario that some analysts describe as a form of “economic blackmail” capability.
India’s Strategic Counterplay to U.S. Tariffs
The Ministry of External Affairs (MEA) has strongly criticised Washington’s latest tariff measures, labelling them as “unfair, unjustified, and unreasonable,” while reaffirming India’s sovereign right to make independent energy choices. Instead of resorting to immediate countermeasures, New Delhi has opted for a calculated, multi-layered strategy.Diplomatic Outreach: India remains committed to achieving a balanced bilateral trade pact, with the goal of concluding negotiations by fall 2025.
Targeted Sectoral Relief: While Commerce Minister Piyush Goyal has dismissed the idea of blanket subsidies, he has proposed targeted interventions such as interest subvention schemes, loan guarantees, and reduced certification charges for Micro, Small, and Medium Enterprises (MSMEs).
Expanding Trade Horizons: Prominent business leaders, including Anand Mahindra, have urged Indian exporters to diversify into new global markets, reducing overdependence on the U.S.
Strengthening Domestic Markets: Prime Minister Narendra Modi has continued to champion the promotion of indigenous products, aiming to shield the economy from fluctuations in external demand
Additionally, India has drawn attention to the perceived hypocrisy of certain Western nations, pointing out that while the U.S. and EU maintain trade relations with Russia, they continue to pressure India over its energy imports from the country.
Tariff Delay Opens Window for Dialogue.
The United States’ decision to wait 21 days before enforcing the additional 25% tariff has created a short but crucial window for both nations to engage in negotiations. This pause offers the possibility of a compromise, potentially reducing the tariff rate to around 15–20%. However, sticking points such as agriculture and dairy remain difficult to resolve, as India seeks to safeguard its farmers and small enterprises while still advancing trade agreements.The episode also underscores the limitations of the World Trade Organization (WTO) in delivering swift conflict resolution. In response, India may consider countermeasures through its own tariff actions. Over the longer term, this situation is likely to strengthen India’s focus on self-reliance and encourage greater diversification of export markets, reducing vulnerability to similar trade pressures in the future.
Indian Markets Defy U.S. Tariff Shock, Show Resilience Across Key Sectors.
On August 7, 2025, Indian equity markets displayed resilience, with both the Sensex and Nifty posting gains despite the announcement of an additional 25% U.S. tariff on several Indian exports. While sectors such as gems and jewellery, automobiles, and textiles experienced selling pressure due to their higher exposure to the American market, areas like IT services, FMCG, and banking remained largely unaffected thanks to their diversified global reach and lower dependence on U.S. trade. Notably, the Nifty Pharma index surged 2.73%, driven by investor optimism over the exemption of pharmaceutical exports from the new tariffs. Although foreign institutional investor (FII) activity turned choppy and a softer rupee posed some capital outflow concerns, the market’s overall positive close underscored confidence in India’s economic fundamentals and its ability to adapt to shifting trade dynamics. This is a clear indication that the market has not undergone any savior clash.
Navigating Tariff Challenges: India’s Path Ahead.
The recent U.S. tariff escalation on Indian goods marks a pivotal moment in bilateral trade relations, carrying both short-term challenges and long-term opportunities for India. While sectors such as textiles, gems, jewellery, and marine products face immediate strain, exemptions for pharmaceuticals, electronics, energy products, and critical minerals reveal the U.S.’s dependence on Indian supplies. This selective targeting underscores India’s strategic leverage in essential industries like generic medicines, where it meets nearly half of U.S. demand.India’s measured diplomatic stance, coupled with targeted domestic support and a push for market diversification, reflects a strategy that balances resilience with negotiation. The positive reaction of Indian equity markets to the tariff news—especially in sectors shielded from direct impact—demonstrates underlying economic strength and investor confidence.Though the tariffs may disrupt certain industries in the near term, India’s growing network of bilateral trade agreements, commitment to self-reliance, and emphasis on tapping alternative global markets position it to weather the storm. Rather than weakening India’s economic trajectory, this episode could accelerate structural reforms and reinforce its standing as a critical player in global trade.