The unprecedented 50% tariff imposed by the United States on Indian goods has less to do with trade disputes and more to do with President Donald Trump’s “personal pique” after New Delhi denied him the chance to mediate in the India-Pakistan conflict, according to a report by American investment bank Jefferies.
The full spectrum of duties, which came into force on August 27, will amount to a $55–60 billion blow to the Indian economy, the report estimated. Sectors such as textiles, footwear, jewellery and gems, which employ millions of workers, are set to be hit the hardest.
“Tariffs (on India) are primarily the consequence of the American president’s ‘personal pique’ that he was not allowed to play a role in seeking to end the long-running acrimony between India and Pakistan,” the Jefferies report said. It added: “India has never accepted third-party intervention in its relations with Pakistan and this remains a red line despite the economic costs of depriving the 47th American president of one of his opportunities to win the Nobel Peace Prize.”
Trump had repeatedly claimed he had prevented a “nuclear war” in South Asia by pressuring the neighbours into a ceasefire. On May 10, he even posted on social media that Washington had brokered a “full and immediate” halt to military action.
New Delhi has strongly rebutted these claims. The Ministry of External Affairs clarified that the ceasefire was achieved through direct communication between the Directors General of Military Operations (DGMOs) of India and Pakistan, initiated by Islamabad, and had nothing to do with US intervention.
Jefferies noted that India’s firm position came at a cost. A trade deal between India and the US was nearly finalised earlier this year, but collapsed after the killing of 26 Indian tourists in Kashmir in April sparked a four-day military conflict with Pakistan. “The draconian tariffs India now faces are the result of an unfortunate series of events,” the report observed.
The report highlighted agriculture as another sticking point. Washington has been pressing New Delhi to open up its farm and dairy markets. a demand India has resisted across successive governments. “No Indian government, including the current government, is going to open up agriculture to imports given the devastating impact it would have on many poor people,” the report stressed. Nearly 250 million farmers and labourers rely on agriculture for their livelihoods, accounting for 40% of India’s workforce.
Trump’s failure to end the Ukraine war, another of his campaign promises, has also put the spotlight on India’s continued purchases of Russian oil. At a recent forum in New Delhi, External Affairs Minister S. Jaishankar pointed out that Europe remains the largest buyer of Russian oil, often refined in India, exposing what he called Western “hypocrisy.”
Jefferies warned that the tariff escalation risks pushing India closer to China. Direct flights between the two countries are set to resume in September after five years, and imports from China are already running at $118 billion annually, or 16% of India’s total imports, growing 13% year-on-year.
While India’s booming services exports — $150 billion from IT and $60 billion from global capability centres of US multinationals, remain untouched, the report cautioned that the impact on manufacturing and small businesses could be severe. “If the 50% tariffs are maintained, GDP will be impacted by an estimated 1–1.2 percentage points with a similar cut in forecast earnings,” it warned.
India’s nominal GDP growth is already slowing, projected to decelerate from 10% in FY25 to 8.5–9% in FY26, the lowest in two decades outside the Covid slump.
To cushion the blow, the Modi government has announced income tax cuts for the middle class and accelerated a Goods and Services Tax (GST) rationalisation, reducing the four existing slabs (5%, 12%, 18%, 28%) to two (5% and 18%) by September. The Reserve Bank of India has also turned dovish, cutting the policy repo rate by 100 basis points this year, with the possibility of more easing as inflation stays low.
Jefferies concluded that the tariff decision reflects Trump’s bruised ego more than sound economic policy. But it warned that the longer the duties stay in place, the more damaging they will be, not just for India’s small and medium enterprises, but also for America’s long-term strategic interests in Asia.