India has enjoyed a privileged relationship with the United States for more than 20 years. The sudden imposition of high tariffs by the United States—first in retaliation for India’s long-standing high tariffs on U.S. exports and then for its continued purchase of Russian oil—thus came as a profound shock in New Delhi.
After a phase of denial and recrimination, India sent a surprising signal: a tentative tilt toward China. Prime Minister Narendra Modi used his appearance at the Shanghai Cooperation Organization summit on August 31 and September 1 to underscore this possibility, staging photo opportunities alongside China’s Xi Jinping and Russia’s Vladimir Putin.
The Modi government’s sense of betrayal stems from two sources. First, New Delhi believes it has always acted in good faith to accommodate Washington’s interests. When President Trump denounced efforts by BRICS to create an alternative currency late last year, India, which was actively engaged in those discussions, quickly distanced itself; at the December BRICS foreign ministers’ meeting, it declared that it had no interest in such plans. When Trump criticized high tariffs on Harley-Davidson motorcycles in January, India reduced them within weeks. In March, it abolished its digital services tax after Trump threatened to retaliate against countries that targeted U.S. tech firms.
In return, India expected to land a preferential trade deal by early July, joining the United Kingdom and China as the only countries with such agreements. On July 8, Trump declared, “We’re close to making a deal with India.”
That promise collapsed on July 31. India was instead hit with a 25 percent tariff, followed a week later by another 25 percent penalty over Russian oil purchases. India’s frustration and sense of betrayal deepened when its justification of those purchases (citing Biden-era U.S. encouragement to “stabilize global energy markets”) was dismissed in Washington as profiteering. The argument also rang hollow domestically: Indian imports of Russian crude—averaging $50 billion annually since the Ukraine war—account for barely 3 percent of world oil trade, too little to support global price stability.
Meanwhile, U.S. officials allege that India re-exported the discounted Russian crude. Although India denies it, export data does raise questions: Its annual petroleum exports doubled from about $40 billion in 2018 and 2019 to roughly $80 billion from 2022 to 2024. That growth rate is difficult to explain by normal demand trends. Further, petroleum prices inside India have risen since 2022, suggesting that importing more oil from Russia did little to improve India’s energy security.
India has since sought support abroad but has found little. U.S. allies such as Japan and Australia criticized discriminatory tariffs in principle but avoided backing India directly. Southeast Asian partners remained silent, wary of provoking Washington. By contrast, China and Russia condemned the tariffs at the SCO summit—a stance that only sharpens U.S. concerns about India’s direction.
For two decades, India insisted that its partnership with Washington, though unequal, required steady recalibration toward equality and mutual respect. That balance has now broken. Whether respect—and, with it, trust—can be rebuilt remains uncertain.
The defense relationship endures: Cooperation in intelligence sharing, joint training, and military exercises continues, and India remains a potentially large long-term buyer of U.S. defense equipment. In late August, even after the tariffs, senior U.S. and Indian officials held their planned strategic dialogue, and Secretary of State Marco Rubio reaffirmed India’s status as a strategic partner.
These ties may prevent a complete rupture, but they cannot on their own salvage the broader relationship. If India wishes to restore trust, it must act with greater strategic clarity and take some calculated risks.
New Delhi could, for instance, use the tariff crisis to experiment with bold, targeted market liberalization. Such a move could create mutual gains, akin to the revolutionary upsurge in India’s telecom sector in the 2000s after the government replaced the license fee with a revenue share. Similarly, the diamond industry, whose margins range from 2 percent to 10 percent, doubled its exports within three years after the government eliminated rough diamond tariffs and reduced tariffs on cut and polished diamonds from 15 percent to 5 percent in 2002. In both cases, the industry delivered much higher tax revenue to the government once it was freed from the burden of paying fixed dues up front.
A carefully chosen experiment, such as drastically cutting tariffs in select sectors like automobiles for a fixed period, could help India demonstrate confidence in its competitiveness, open pathways to renewed trade cooperation with the United States, and move beyond reactive diplomacy toward a more sustainable long-term strategy.
By contrast, the prospect of a political realignment with China is fraught with contradictions. This is the same China that supported Pakistan during the July 2025 India-Pakistan war. China also inflicted territorial losses on India in Galwan in 2020. China’s Belt and Road Initiative traverses territory under Pakistan’s control that is claimed by India. And it was China’s economic dominance that caused India to withdraw from the Regional Comprehensive Economic Partnership, the massive free-trade agreement.
India’s ties with China should emphasize economic cooperation and resolution of border disputes, not geopolitics. A strategic alignment with Beijing offers little leverage against Washington and provides no durable foundation for India’s long-term interests. At best, such a turn would be a tactical maneuver, at worst, a self-defeating illusion. Modi’s mixed signals—attending the two-day SCO summit in Tianjin but then skipping Beijing’s military parade 48 hours later on September 3—underscore India’s ambivalence. Perhaps ambiguity, rather than alignment, is the wiser course.
– Rafiq Dossani is a senior economist at RAND and a professor of policy analysis at the RAND School of Public Policy. He works on Asian development and security, trade, and technology issues. Published courtesy of RAND.
