US notifies extra 25% punitive tariff on India; FY26 shipments may plunge 43% to $50 billion
The United States on Tuesday issued a “notice of implementation” to New Delhi, regarding a 25% extra tariff on Indian goods for its purchase of Russian oil, a move that dashed hopes of a last-minute bilateral reconciliation on the matter.
With this, the total additional tariff above the most favoured nation (MFN) rates on shipments to the US, including a 25% “reciprocal” levy imposed on August 2, will be a prohibitive 50%. The actual duty incidence, including the MFN tariffs, could be as high as 63%, as in the case of textiles and apparel.
Though the department of homeland of the US said the 25% penal duty will take effect from Wednesday, it provided a three-weeks window for products in transit to enter the American territory, at lower duties.
India Pushes Back on Rising Pressure
Speaking at Ahmedabad on Tuesday, prime minister Narendra Modi reiterated that an era of “economic selfishness” has dawned, but insisted India would withstand the pressure. “No matter how high the pressure, India will continue to build its strength to withstand it,” he said, asserting the stance that the interests of vulnerable sections like farmers and cattle rearers would be protected at any cost.
Recently, external affairs minister S Jaishankar outlined India’s “red lines” in trade talks with the US in the same vein, even as he indicated negotiations were still going on.
The chances of revocation of the punitive levy would now depend on how and when Washington and the Kremlin reach an agreement on ending the Russia-Ukraine war.
Exports to US Face Steep Decline
The new US tariff, according to the ministry of finance, will hit 55% of India’s merchandise exports to the US, but some private agencies and export bodies have estimated the impact to be even higher. Delhi-based trade policy think tank GTRI, for instance, said two thirds of Indian goods exports to the world’s largest economy will now face tariffs of 50% or higher, resulting in a 70% impact on labour-intensive exports from sectors like textiles and garments, seafood and gems and jewellery.
India’s merchandise exports to the US were close to $87 billion in 2024. The exports in the current financial year, despite a 21% annual growth in April-July, could end up below $50 billion.
Of course, around 30% of exports to the US will continue to be duty-free, including pharmaceuticals, energy and electronics, but medicines too are under the threat of higher duties. Products like steel, aluminium, copper will attract 50% import duties in the US, but these apply to all countries equally. Similarly, automobiles and auto components from all countries are subjected to 25% duty.
According to the latest US order, products in transit can enter the US and can be withdrawn from the warehouse for consumption before 12:01 am eastern daylight time from September 17 or 0930 hrs India time on September 18 without paying additional 25% duties. After the notice, the total tariffs on the majority of Indian goods entering the US will now be charged additional 50% duty.
Since the trade circles were aware of the imposition of additional duties in advance, they have front-loaded the fulfilment of orders from the US. In April-July merchandise exports to the US have grown 21% on year to $ 33.53 billion. In August the shipments to the US would have increased further and many categories of producers would also have used the air route to beat the August 27 deadline, director general and CEO of Federation of Indian Export Organisations (FIEO) Ajay Sahai said.
Air route is usually used by exporters of high value products like gems and jewellery. “Due to the front loading the Indian exporters have fulfilled the orders for the Christmas shopping season,” he added. At this time of the year the US buyers place orders for next summer season but now they are holding out awaiting clarity, Sahai said.
India is now the highest tariffed country by the US along with Brazil. A US delegation that was to visit India from Monday for the sixth round of talks on the Bilateral Trade Agreement (BTA) has decided not to come. While India and US still remain engaged at the diplomatic level and through other channels, the progress on resolution of Russia-Ukraine could lead to a relief. The US president Donald Trump is directly involved in brokering an agreement between Russia and Ukraine and an understanding is reached that 25% penal tariffs could go, trade sources said.