For international business owners and investors in 2025, no word has caused as much headache as the word “tariffs.” The concept of both raising money and protecting local industry by taxing imports is not new. In Ancient Greece, the Athenian port of Piraeus imposed duties on goods entering Athens. Most economists believe that while over time, the rising costs attributed to tariffs shifts to consumers with little benefit to the governments implementing the tariffs, the immediate effects fall on business owners who now must navigate additional red tape and an immediate reduction in profits. The U.S. and India have a long history of reciprocal tariffs, with the U.S. often implementing them as bargaining chips in broader negotiations while India seeks to build its domestic industries with economic liberalization still ongoing. 

According to a May 2025 Congressional Research Service report on U.S. India trade relations, India was the U.S.’s 10^th largest goods trade partner in 2024, the U.S. was India’s largest partner. Tariffs with India have been an issue in the past. In 2019, the US removed India from a special program that provided lower tariffs on steel and aluminum products. This event resulted in retaliatory tariffs that affected U.S. and Indian markets. India has historically placed higher tariffs on U.S. goods; the pre-2025 trade-weighted average tariff was 12%, compared to the United States’ 2.2% trade-weighted resulting in conflict with the second Trump Administration. In April 2025, the U.S. imposed a 27% tariff on most Indian goods, with 25% tariffs on automobiles, auto parts, steel, and aluminum, while maintaining exemptions for pharmaceuticals and semiconductors. India responded with a 27% tariff of its own. But both nations have a vested interest in establishing stronger ties both to grow their own economies and to counter regional influence counter to Indian and American interests and values.

Effects on U.S. Markets and Business

India and the U.S. are actively working towards an agreement to lower tariffs and other barriers that will be mutually beneficial. India has historically imposed higher tariffs on U.S. goods entering India than the U.S. imposes on Indian goods with high tariffs on steel products being a point of contention for the second Trump Administration. India has also historically engaged in tit-for-tat tariff hikes in response to U.S. tariffs resulting in disrupted higher prices for consumers. The recent announcement of 25-27% tariffs on Indian goods was followed by similar tariff hikes from India. India is still developing with goals of becoming a first world country by 2047 through the promotion of its domestic industries. As such, policies that make it more difficult for U.S. businesses to compete against Indian businesses in India, such as high tariffs,will be enticing to the Indian government despite the negative effects many economists predict. Another effect of the current Indian and American protectionist policies is that trade partners will seek deals with other nations. On May 6, 2025, with discussions between the U.S. and India still ongoing and tariff increases still in sight, India announced a new trade agreement with the U.K.Due to current trade relations between India and the U.S., the U.S. is a less desirable market and partner for Indian businesses and to mitigate cost increases from tariffs, Indian businesses will look for new arrangements in other counties. U.S. businesses that rely on imports from India will also be affected and see costs increase due to tariffs. The goal of tariffs is often to promote domestic industry which may not be able to compete against cheaper imports resulting in a stronger domestic economy; but economists such as Milton Friedman disagree with this view, observing that high tariffs do not boost domestic production and ultimately slow the economy down. Legal counsel in both countries will need to devote considerable time to ensuring proper classification of goods, allocation of risk, and adjustments for tariff-related expenses, further increasing costs of doing business with international partners.  

Effects on Indian Markets and Businesses

India’s economy is rapidly developing. According to a Reuter’s report in May 2025, between January of 2025 and March of 2025, India’s economy grew by 7.4% in 2025 is projected to grow by 6.4-6.5%. But tariffs and other disruptions (such as oil shortages caused by conflict in the middle east) could slow growth. A common train of thought in developing countries is that they need protectionist policies to build their native industries, though more recent research has shown that free trade with fewer restrictions is more beneficial for even developing markets and industries. Indian companies looking for international connections risk losing U.S. partners due to tariff increases in both countries. Protectionist policies such as the U.S.’s 1930 Smoot–Hawley Tariff Act have historically had negative effects on domestic markets as they discourage trade and harm businesses that rely on imports and exports by inciting retaliatory tariffs. India has a strong interest in developing itself and resisting, and potentially challenging, countervailinginfluences on the global stage, but to achieve those goals it will need to lower its tariff rates to make its markets desirable to international partners and investors. Bilaterial dialogue is ongoing with the goal of reducing barriers around aluminum, steel, agricultural products, and other industries in order to provide Indian businesses with international partners and Indian consumers with a wider range of options to bring India in line with the standards of first world economies.

Specific Indian Sectors Impacted by U.S. Tariffs:

• Pharmaceuticals: While Indian pharmaceuticals were initially exempted from U.S. tariffs, reports indicate that the Trump Administration is considering imposing duties on pharmaceutical imports up to 200% over the next year. This consideration has led to some anxiety and impact on the listing prices of Indian pharmaceutical majors that depend on exports to the U.S.
• Medical devices, however, have been a point of debate, with tariffs as high as 26% being proposed. India is recognized for its cost-effective and high-quality medical devices, primarily in low-volume high value consumables category. Typically, the entry barriers for this sector are high, since US FDA approval costs are high. On the flip side, the US Trade Representative has reported the Bureau of Indian Standards as being onerous to comply with due to high tariffs on imported devices, price controls, and delays with local clearance – issues stemming from India’s policies aimed at supporting its domestic medical device producers against better-funded foreign competition.
• Automobiles: The automobile sector remains vulnerable, particularly companies that export auto components to US-based manufacturers such as GM, Ford, and Tesla. While it was Tesla’s intended entry into the Indian market that sparked the intense tariff discussions, there have been a few signals to indicate softening of stance on both sides to assuage investor sentiment. Even with the discussion ongoing, Tesla has entered the Indian market though with an elevated consumer price relative to models available to U.S. consumers due to India’s own tariffs.
• Chemicals: Tariffs could negatively impact manufacturers in capital goods and chemicals, which are considerably export dependent, especially with the U.S. currently accounting for 18% of India’s chemical exports; however, with U.S. tariffs also being increased on competing countries, there is opportunity for chemical manufacturers to increase U.S. business despite tariff uncertainty.
• Metals and steel: Disputes regarding alumni and steel have caused disruption before. These sectors will remain under pressure from tariffs until relations can be reached.
• Textiles: Indian textile exports, which contribute significantly to global supply chains, could face headwinds from US tariff measures. The 26% tariff imposed on textiles would raise costs for Indian exporters and U.S. consumers; however, the rate is lower than rates imposed on competing countries such as the 46% tariff on goods from Vietnam. As with the other industries, talks are underway to reduce tariffs for both nations and increase the ease of trade.

Silver Linings

Despite the uncertainty caused by the current global economic climate, there are opportunities for progress. Some industries, such as software, are less affected by tariffs as compared withother industries and may attract new investors. Companies heavily dependent on U.S.-India trade may use this period to diversify into other markets, reducing the risk that comes with concentrating heavily on single markets. Supply chains may also grow more efficient to compensate for profits lost due to tariffs. Bilateral talks may result in longstanding issues related to certain industries, such as steel and certain agricultural products, reaching lasting resolutions. With the U.S. and India sharing a common of goal of containing countervailing influences, trade relations may emerge out of this period of uncertainty stronger than before with lower tariffs and barriers on contests industries and other questions that affect entrepreneurs from both nations seeking to enter the markets of the other finally being resolved.

Final Thoughts

While tariffs are often perceived as necessary tools for protecting domestic industries, their impact on U.S.-India business relations is far-reaching, multifaceted, and may do more harm than good for both markets. From disrupting supply chains to straining diplomatic relations, the costs of high tariff barriers are evident; however, the challenges also present opportunities for reform. The U.S. and India hope to increase trade to $500 billion by 2030 and to enter into a new bilateral trade agreement. By fostering dialogue, exploring bilateral agreements, and collaborating on industry-specific initiatives, the U.S. and India can unlock the full potential of their economic partnership. For businesses on both sides, reducing tariff barriers is not just a matter of cost-saving, but a critical step toward long-term growth and prosperity.

Written By: Samuel Deese of Bagchi Law and Kaushik Rajan of Stoicus Legal