Trump Tariffs Add to India’s Pile of Woes

A person walks past a jewelry store in the ‘Little India’ neighborhood of New York City on Aug. 7, 2025. (ANGELA WEISS / AFP / Getty Images)

About the author: William Pesek is a longtime Asia opinion writer, based in Tokyo. He is a former columnist for Barron’s and Bloomberg and the author of Japanization: What the World Can Learn from Japan’s Lost Decades*.*

Of all the things Narendra Modi worried might wreck India’s 2025, a messy breakup with Donald Trump probably wasn’t high on the list. And it came over Russia, of all things.

The U.S. president slapped India with new tariffs on Wednesday, saying India is profiting from Russian oil that the U.S. and Europe stopped buying after the Ukraine invasion. That will add to the pile of economic woes Prime Minister Modi is already dealing with.

The optics of the world’s biggest democracy helping itself to cheap Russian oil amid Ukrainian suffering were never great. But Prime Minister Modi managed to play the China card well enough. The bargain seemed to be: India is happy to be a geopolitical counterweight to China, so long as the West looks the other way at India’s $275 billion of annual oil purchases from Moscow.

This dispensation seemed easier when Trump returned to the U.S. presidency in January. His affinity for Russian President Vladimir Putin gave Modi a freer hand to ramp up oil purchases. Also, Modi’s status as a top Trump whisperer was about to pay off.

Who among the 1.4 billion-plus people in Modi’s India could forget that 2019 “Howdy, Modi” spectacle in Texas? There, standing before 50,000 Indian Americans, Modi held Trump’s hand, signaling theirs was a bromance for the ages.

That sure seems a long time ago now, as Trump calls India’s economy “dead,” while hitting it with another 25% tariff, on top of an earlier 25%.

Yet as much as Modi can—and frankly should—point the finger at Trump as India’s 2025 circles the drain, he also should be looking in the mirror.

Even before Trump 2.0 arrived, India wasn’t generating enough economic growth or new jobs to keep the nation’s longer-term aspirations on track. Those shortcomings are now catching up with India as Trump’s tariffs cloud the outlook.

Since 2014, Modi’s Bharatiya Janata Party has been promising to upend India’s $3.5 trillion economy with a big bang to top the earlier reforms of former Prime Minister Manmohan Singh, whose party the BJP had just defeated. The changing of the guard was drenched with significance, as Singh was the 1990s finance minister who directed India’s initial opening to the global economy.

Modi was riding a wave of excitement from his 13-plus years as chief minister of Gujarat. During that 2001-2014 tenure, the western state was believed to produce above-average economic growth rates, less bureaucracy and corruption, greater innovation and better infrastructure than peers.

The hope was that Modi would supersize his “Gujarat model,” raising India’s competitive game nationally.

Eleven years on, though, the sheen is off Modinomics. Voters and investors alike realize that increased foreign investment outpaced efforts to reduce inequality—even before Trump’s return.

In January, around the time of Trump’s inauguration, polling agency C-Voter found respondents were really feeling the downshift in India’s growth to the slowest pace in four years. High inflation has squeezed household budgets and damaged spending power. Nearly two-thirds said rising expenses had already become difficult to manage.

The problem, economists say, is that much of India’s growth is driven by pockets of success, like giant infrastructure projects and tech start-ups. But there aren’t enough broader efforts to spread the benefits of growth.

As Raghuram Rajan, a former Reserve Bank of India governor, put it in January, before Trump’s tariffs onslaught: “The problem is that [infrastructure] seems to be the primary engine of the growth. Consumption, which was the other engine earlier, is faltering. Partly, because India needs many more jobs than what you are seeing. The biggest challenge for the government is to create those jobs across the board.”

Rajan explained that “at the upper end, yes, jobs are plentiful. But at medium and lower levels, they are not. How do you get people out of agriculture? What do they go to? That is the big question.”

Trump’s 25% + 25% tariff gambit sure won’t help. It could become exponentially harder for Team Modi to create enough decent-paying jobs to make productive use of one of the globe’s biggest and fastest-growing youth workforces.

Modi’s economy was already growing well below the 8% needed to reach developed-nation status by 2047. Many think Trump’s 50% headwind could shave at least 1% off Indian growth.

That 2047 goal is becoming even more out of reach when you consider Trump’s almost cartoonishly large tariff. The hope, of course, is that cooler heads prevail and Trump’s second 25% levy—or even the first 25%—ultimately won’t happen.

Modi had hoped that the warm vibes from Trump 1.0 and that 2019 night in Houston would score India a lower tariff. Perhaps one below the 19% Trump assigned to Indonesia and the Philippines. Perhaps even a 15% rate like Japan.

Who will blink first? It’s never wise to bet on self-described strongman-types caving. The “grand bargain” deal Trump is looking for is with China, not India. And Modi has shown no signs of backing down.

Trump benefits from what economists call “escalation dominance.” The U.S. relies on India for just 2.3% of overall exports. Yet India gets one-third of its foreign investment from the U.S. So, you’d probably rather be Trump than Modi in this brawl.

Of course, Modi may decide that India has options as China and the rest of the Brics nations—Brazil, Russia, India, China, and South Africa—mull ways to diversify away from Trump’s economy. But the tariff shock upending India’s 2025 would be less damaging if not for the pre-existing conditions Modi’s economy carried into this crisis.

Eleven years should’ve been enough time to kick job creation into a higher gear and increase productivity. It’s high time Team Modi got to work.

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