UPSC CURRENT AFFAIRS – 07th August 2025
U.S.-India Trade Dispute: Trump's 50% Tariffs and India's Oil Imports from Russia
Why in News?
- U.S. President Donald Trump signed an executive order imposing an additional 25% tariff on Indian imports, citing India’s continued oil trade with Russia.
Background
- In a significant escalation of trade tensions, U.S. President Donald Trump signed an executive order on August 6, 2025, imposing an additional 25% tariff on imports from India.
- This is in retaliation for India’s continued imports of crude oil from Russia, which the U.S. views as undermining its sanctions regime on Moscow.
- Combined with an earlier 25% tariff announced on July 31, Indian goods entering the U.S. will now face a total tariff of 50% — a move India calls “unfair, unjustified, and unreasonable.”
- This development threatens not only India’s export competitiveness but also the prospects of a bilateral trade deal currently under negotiation.
Background: U.S. Concerns Over Russian Oil
- The U.S. executive order cites Executive Order 14066, related to the national emergency arising from Russia’s actions in Ukraine.
- It argues that India’s “direct or indirect” imports of Russian oil contravene the U.S.’ strategic objectives.
- While the U.S. has sanctioned Russia heavily since its invasion of Ukraine in 2022, countries like India and China have continued energy trade with Russia, citing economic and energy security reasons.
India’s Stand on Russian Oil Imports
India’s Ministry of External Affairs (MEA) has strongly objected to the tariff hike, reiterating the following:
- Energy Security Priority: India imports oil based on market dynamics, with the goal of securing affordable energy for 1.4 billion people.
- Global Hypocrisy: The MEA pointed out that both the EU and the U.S. continue other forms of trade with Russia, often in greater monetary value than India’s oil imports.
- Violation of Sovereign Rights: India sees the U.S. tariff move as an attempt at economic coercion, interfering with sovereign decision-making.
Impact on Indian Exports
According to the Federation of Indian Export Organisations (FIEO):
- Nearly 55% of Indian exports to the U.S. will be impacted.
- The 50% cumulative tariff makes Indian products 30–35% more expensive compared to competing countries not facing such duties.
- This undermines India’s competitive edge, especially in sectors like textiles, pharmaceuticals, chemicals, and engineering goods.
Ongoing Trade Negotiations at Risk
- Both sides are in the process of negotiating the first tranche of a Bilateral Trade Agreement (BTA), expected by fall 2025.
- The next round of talks is scheduled for August 25 in New Delhi.
- However, trade experts warn that negotiations cannot succeed under threats or acts of unilateral coercion.
Experts say:
- India should avoid immediate retaliation and adopt a measured approach.
- It should consider curbing Russian oil imports only if economically viable, not due to U.S. pressure.
Broader Geopolitical Implications
- The move may signal a harder line by the U.S. on non-aligned countries engaging with Russia, even economically.
- It could strain strategic ties between the U.S. and India, which are currently strengthening through platforms like QUAD and defence cooperation.
- India might now diversify its trade relationships further, seeking alternative markets and reliable partnerships outside of the West.
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Introduction
Economic Implications
For Indian Exporters
- These reforms reduce transaction costs and compliance hurdles
- Encourage a more competitive and efficient export environment
- Promote value addition in key sectors like leather
For Tamil Nadu
- The reforms particularly benefit the state’s leather industry, a major contributor to employment and exports
- Boost the marketability of GI-tagged E.I. leather, enhancing rural and traditional industries
For Trade Policy
- These decisions indicate a shift from regulatory controls to policy facilitation
Reinforce the goals of Make in India, Atmanirbhar Bharat, and India’s ambition to become a leading export power
Recently, BVR Subrahmanyam, CEO of NITI Aayog, claimed that India has overtaken Japan to become the fourth-largest economy in the world, citing data from the International Monetary Fund (IMF).
India’s rank as the world’s largest economy varies by measure—nominal GDP or purchasing power parity (PPP)—each with key implications for economic analysis.
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