In an increasingly multipolar world where supply chains are deeply interconnected, the Trump administration’s decision to slap a sweeping 25 percent tariff on Indian imports looks less like strategic leverage and more like economic self-harm. 

A new report by State Bank of India (SBI) Research warns that the tariffs — aimed at punishing India for its continued trade with Russia — could deliver an inflation shock to the United States, raising costs for consumers, straining manufacturers, and shaving growth off the world’s largest economy.

Instead of coercing a policy reversal from New Delhi, the report suggests the U.S. may end up penalizing its own people — particularly working-class families already reeling under high living costs.

“This is not just a diplomatic maneuver — it’s a direct tax on American consumption,” the SBI report bluntly stated. “The 25 percent tariff is a bad business decision that risks amplifying inflation and squeezing households, especially those already under financial strain.”

A Regressive Tax in Disguise

The tariffs, which take effect August 7, apply to a wide range of everyday goods from India — electronics, auto components, apparel, footwear, textiles, machinery, and home goods — with few immediate substitutes. According to SBI, the new duties could push U.S. consumer price inflation up by 2.4 percent in the short term, settling around 1.2 percent in the long term as markets adjust.

“The average U.S. household will face an inflation-driven cost increase of $2,400 annually due to these tariffs,” the report noted.

Lower-income households are likely to suffer most, with an estimated $1,300 hit to disposable income — nearly three times the relative burden faced by higher earners.

While protectionist trade policies often claim to shield domestic industry, in this case the outcome appears upside down: American families pay more while supply chains strain and producers lose competitiveness.

Healthcare and Industry on Edge

Even sectors that were exempted — notably pharmaceuticals, semiconductors, and energy products — aren’t out of the woods. India supplies 47 percent of U.S. generic drugs, and industry insiders say tariff-induced uncertainty could still disrupt sourcing, delay shipments, and inflate healthcare costs.

“These duties may interrupt the smooth trade flow, inflate U.S. drug costs, stall treatments, and put even greater pressure on American healthcare budgets,” said Sanjaya Mariwala, Executive Chairman of OmniActive Health Technologies.

For American manufacturers relying on Indian intermediate goods — from photovoltaic cells and industrial gear to auto subcomponents — the ripple effects are expected to include rising input costs, margin compression, and potential job losses.

SBI estimates that the overall impact could shave 40–50 basis points off U.S. GDP, largely through reduced consumer demand and costlier production.

“This inflation spike will not be evenly distributed,” SBI cautioned. “The poorest will pay the highest price for protectionist politics.”

India: Bruised, Not Broken

India, for its part, will take a hit — but one it appears prepared to absorb. SBI projects a 25–30 bps decline in Indian GDP growth for FY26. According to Ajay Srivastava of the Global Trade Research Initiative, exports to the U.S. could fall by 30 percent, down from $86.5 billion to $60.6 billion.

But unlike in the past, India is not cornered. Its growing web of free trade agreements with countries like the UAE and Australia, and its proactive diplomacy in forums such as BRICS, suggest a country that is increasingly resilient to Washington’s pressure tactics.

“The impact for India’s pharma and textile sectors is real,” said Shashi Mathews, partner at CMS IndusLaw. “But Indian exporters can pivot to alternative markets where FTAs already exist.”

A Domestic Diversion Disguised as Foreign Policy

What began as a punitive measure to compel Indian realignment may instead reflect the domestic political imperatives of the Trump administration. With approval ratings sliding and a critical midterm election season ahead, trade action provides a ready-made headline — even if the underlying economics are questionable.

SBI suggests that this strategy may ultimately weaken American credibility abroad and disrupt the very global order it seeks to lead.

“In a multipolar, fractured world order, such unilateralism weakens the spirit of global democracy,” the report said.

Bottom Line: Economic Misfire, Political Theater

With its sweeping tariff decision, the Trump administration has triggered an economic chain reaction that hurts American consumers, strains manufacturers, and risks further destabilizing global trade flows — all while achieving little meaningful leverage over India.

“The thumb rule of global business is simple — source and sell where rewards outweigh risks,” SBI concludes. “Disrupting this logic will only distort the global order — and hurt the American wallet in the process.”

In the end, the costs of this policy may not be felt in New Delhi — but at checkout counters, pharmacy counters, and factory floors across the United States.

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