US to Impose 25% Tariff Plus Penalty on Goods From India

At a time when India is positioning itself as a hub for global manufacturing and presenting as an alternative to China, the US President Donald Trump said his country will impose a duty of 25% along with a penalty on the export of goods from India from August 1.

“Remember, while India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high, among the highest in the world, and they have the most strenuous and obnoxious non-monetary trade barriers of any country,” Trump said on a social media platform.

“Also, they have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to stop the killing in Ukraine – All things not good. India will therefore be paying a tariff of 25% plus penalty for the above, starting August 1st.” 

While India's direct vehicle exports to the US are currently modest, a growing number of OEMs are actively exploring establishing India as a global manufacturing hub. Key two-wheeler manufacturers such as Royal Enfield, Triumph, Honda Motors, Suzuki and Yamaha are notably at the forefront of this initiative, seeking to capitalize on the burgeoning demand in the American market for high-end motorcycles.

However, the US is the biggest market for auto component exports from India. During the financial year 2025, India exported components worth $7.35 billion to the US, representing a growth of 8.4% on year. On the other hand, component imports from the US to India were at $1.65 billion.

India and the US have been engaged in complex negotiations regarding import duties for a long time. While India has traditionally maintained high tariffs to protect its domestic industry, the US has pressed for greater market access, often citing India's high duties on American goods.

India’s steep import duty, particularly on completely built units (CBUs) was back in discussion after Donald Trump became the president of the US last year. Additionally, the CEO of electric car maker Tesla has been criticizing India's import duties for a long time, and has cited them as a reason for not manufacturing in India.

India's import duties, particularly on CBUs, have long been an international trade discussion. This became especially prominent after Donald Trump returned as the President of the US. He has highlighted that India's import duties on American vehicles sometimes exceed 100%, and has been pushing for reciprocal tariffs against countries with which the US has trade deficits. 

Though India tried to make a deal with Tesla through its Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMPCI), which reduces the tariff on CBU imports of electric cars to 15% for five years, it did not see any results. The deal mandates a commitment to investing at least Rs 4,150 crore (approximately $500 million) to Make in India within three years.

Recently, India and the UK announced the India–UK Comprehensive Economic and Trade Agreement (CETA), which progressively slashes the base rate of customs duty on internal combustion engine (ICE) passenger vehicles to as low as 10% over the next five years.