US–India Relations 2025: History, Tariff Disputes, and the Road Ahead

The United States and India, the world’s largest and oldest democracies, share a relationship rooted in shared values, economic opportunity, and strategic goals. From decades of cautious engagement to today’s multifaceted partnership, the journey has been complex and dynamic. Yet, in 2025, the relationship faces a serious test—tariff disputes that risk overshadowing decades of progress.

U.S. President Donald Trump (R) arrives for a joint news conference with Indian Prime Minister Narendra Modi in the Rose Garden of the White House in Washington, U.S., June 26, 2017. REUTERS/Kevin Lamarque

This article examines the history of US–India relations, the current tariff standoff, and how both nations can move toward a stronger, mutually beneficial future.

A Brief History of USA–India Relations

The Early Years (1947–1991)

After India gained independence in 1947, diplomatic relations with the U.S. began on a cordial note. However, during the Cold War, ideological differences and global alliances kept the partnership lukewarm.

• Non-alignment: India chose not to formally join either the U.S.-led Western bloc or the Soviet-led Eastern bloc, though it leaned towards the USSR on defence and economic support.

• Pakistan factor: U.S. military and economic aid to Pakistan strained trust with India.

• 1971 Indo-Pak War: U.S. support for Pakistan during the war, when India intervened to help Bangladesh gain independence, created a deep rift.

• Trade and technology limitations: Export controls, limited market access, and sanctions following India’s nuclear tests in 1974 slowed cooperation.

By the end of the Cold War, the relationship was cordial but far from strategic.

Post-Cold War Realignment (1991–2005)

The collapse of the Soviet Union and India’s 1991 economic reforms opened a new chapter.

• Economic reforms: India liberalised its economy, inviting foreign investment and trade. U.S. companies began exploring opportunities in technology, manufacturing, and services.

• Nuclear tensions: In 1998, India conducted nuclear tests, prompting U.S. sanctions. However, within two years, dialogue resumed under the Clinton administration, recognising India’s growing role in Asia.

• Landmark moment – The 2005 Civil Nuclear Deal: Under Prime Minister Manmohan Singh and President George W. Bush, the 123 Agreement allowed civilian nuclear cooperation, ending decades of nuclear isolation for India and signalling a strategic embrace.

Strategic Deepening (2005–2014)

The mid-2000s saw rapid growth in both defence and trade.

• India became a “Major Defence Partner” of the U.S.

• Agreements like LEMOA, COMCASA, and BECA facilitated military logistics, secure communications, and geospatial cooperation.

• The 2+2 Ministerial Dialogue institutionalised defence and foreign policy coordination.

• Trade grew, especially in IT services, energy, and defence equipment.

The Modern Era of Strategic Convergence (2014–2024)

Under Prime Minister Narendra Modi, the partnership became more visible and people-centric.

• Quad revival: The U.S., India, Japan, and Australia worked together on Indo-Pacific security.

• Technology and energy: India emerged as a major buyer of U.S. crude oil, LNG, and defence technology.

• Space and research: NASA and ISRO deepened cooperation on lunar exploration and Earth observation.

• Trade expansion: Bilateral trade grew steadily, reaching $500 billion by 2030.

By 2024, despite differences on issues like data protection and agricultural access, the relationship was among the strongest in India’s foreign policy framework.

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Current Scenario – The Tariff Tussle of 2025

Modi’s 2025 U.S. Visit and “Mission 500”

In February 2025, PM Modi visited Washington. Both leaders announced “Mission 500”—a target to raise annual trade to $500 billion by 2030. A 10-year defence cooperation framework was signed, and energy imports were discussed to address trade imbalances.

However, optimism was short-lived.

The Tariff Escalation

With Donald Trump returning to the White House, trade tensions resurfaced.

• Tariff gap issue: The U.S. average applied tariff is around 2.2%, while India’s average is about 12%. Trump criticised this imbalance.

• Initial move: India offered selective tariff reductions on items like U.S. almonds and dairy, but insisted on reciprocity.

• April 2025: The U.S. announced a 27% reciprocal tariff on Indian goods, though implementation was delayed for talks.

• July 30, 2025: Trump imposed a 25% tariff on Indian exports, citing India’s continued purchase of Russian energy.

• August 2025: Tariffs doubled to 50% on a wide range of Indian exports—textiles, auto components, pharmaceuticals, gems, and jewellery.

Fallout

• Economic impact: Indian exporters face reduced competitiveness in the U.S. market, threatening jobs in key sectors.

• Diplomatic tension: The tariff move is seen by India as discriminatory and politically motivated.

• Quad strain: The trade dispute risks overshadowing Indo-Pacific security cooperation.

• Strategic risk: Analysts warn that prolonged tension could push India to deepen trade with alternative partners like the EU, ASEAN, BRICS, or even China and Russia.

Why Tariffs Became the Flashpoint

Trade imbalance

While the U.S. runs a goods trade deficit with India, it has a surplus in services—especially IT, engineering, and consulting. The imbalance in goods is a political talking point in Washington.

Agricultural access

The U.S. seeks greater access for its agricultural products, which face high Indian tariffs.

Intellectual property and e-commerce rules

American tech and pharma companies want fewer restrictions in India’s regulatory environment.

Energy geopolitics

India’s continued purchase of discounted Russian oil is seen by Washington as undercutting U.S.-led sanctions.

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The Way Forward – Possible Solutions

Resolving the tariff dispute while safeguarding strategic ties requires a mix of diplomacy, flexibility, and structural reforms.

Revive Negotiations with Targeted Concessions

• For India: Consider lowering tariffs on select U.S. agricultural products and high-tech equipment, where domestic impact is manageable.

• For the U.S.: Restore Generalised System of Preferences (GSP) benefits to Indian goods and remove the steep 50% tariff on critical exports.

• Use a phased approach—link tariff reductions to measurable trade growth.

Decouple Trade from Strategic Cooperation

• Keep Indo-Pacific security cooperation, defence procurement, and intelligence-sharing insulated from trade disputes.

• Reinforce platforms like the 2+2 Ministerial Dialogue to ensure communication channels stay active.

Joint Economic Council

• Establish a permanent U.S.–India Trade & Investment Council to address disputes early.

• Include private sector leaders, economists, and policymakers from both sides.

• Review tariff policies annually to prevent sudden escalations.

Energy Balancing

• India can gradually increase purchases of U.S. LNG and oil to balance geopolitical concerns while maintaining energy security.

• Promote joint investments in renewable energy projects to reduce long-term dependency on fossil fuels.

People-to-People & Business Linkages

• Expand student exchange programs, tech partnerships, and business delegations.

• The more stakeholders involved in the relationship, the higher the cost—political and economic—of a rupture.

Digital & Technology Alliance

• Co-develop 5G/6G infrastructure, AI ethics frameworks, and semiconductor manufacturing capabilities.

• Make tech cooperation a “safe zone” immune to trade politics.

Conclusion – A Relationship Too Important to Fail

The U.S.–India partnership has weathered ideological differences, nuclear standoffs, and shifting global orders. Today, it stands as one of the most strategically important relationships of the 21st century.

Tariffs may be the current flashpoint, but they are only a chapter in a longer story. If leaders on both sides choose flexibility over confrontation, this crisis could become a catalyst for deeper, more balanced economic cooperation.

With the right mix of diplomacy, compromise, and shared vision, Washington and New Delhi can ensure that the world’s two great democracies continue to walk side by side—towards mutual prosperity, regional stability, and global leadership.

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