India-US Trade Deal on the Brink as Washington Reopens Tariff War

How new US tariffs could sink the India-US trade deal

US Ambassador to India Sergio Gor recently claimed that the India-US trade deal is on the verge of finalisation and that “almost everything” about the agreement was done “in principle”. 

However, even as Ambassador Gor was exuding confidence regarding the deal, two initiatives taken in Washington in just over a month have brought yet another round of tariff war at India’s doorstep. These initiatives have the potential of increasing friction between the two countries, and could even torpedo the deal. 

How the Graham Sanctions Bill Threatens the India-US Trade Deal

The most egregious of these developments is the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, a bipartisan bill tabled in the US Senate, which has the backing of the US President. 

This Act proposes imposition of tariffs of up to 100 percent on all goods from three sets of countries: the five largest importers of Russian crude oil; the five largest importers of Russian natural gas; and countries facilitating Russian oil sanctions evasion. 

India, the second largest buyer of Russian crude oil, is an obvious target of the proposed excessive tariffs. This is a continuation of the actions successive US administrations have taken against the Russian Federation since its war against Ukraine. 

The second development is Donald Trump’s proposal to impose 100 percent tariffs on generic medicines from 2028, unless the firms exporting these medicines do not reshore their operations to the US. This proposal could significantly affect India’s pharmaceutical industry since the US is its largest export market.

The bipartisan Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, named after the Republican Senator, who was the bill’s strongest proponent, was overwhelmingly voted by the Senate (86-11) in early August. The House of Representatives would take up the bill for consideration after it reconvenes in early September, and could push for its early adoption.

India's Russian Oil Dependence Tests the Trade Pact

The primary objective of the bill is to tighten the economic sanctions on Russia for its continued war on Ukraine. The bill proposes 500 percent tariffs on all goods imported into the US from Russia. It also proposes 100 percent tariffs on all goods imported into the US from the five largest importers of crude oil or natural gas, by total volume, originating in the Russian Federation. As one of the largest importers of Russian-origin crude oil, India also faces penal tariffs for facilitating Russia’s sanctions evasion.

Market analysts put India as the second-largest buyer of Russian crude oil in July 2026, valued at over USD $7.3 billion, or about 37 percent of Russia’s global exports.  

According to Indian government data, India’s dependence on Russian crude oil increased from 30 percent to nearly 43 percent of its total imports between January and June 2026. In February 2026, after the US and India reached a framework for an Interim Agreement as a step towards finalising the India-US trade deal, President Trump announced that the 25 percent tariffs imposed on India in August 2025 for importing Russian crude oil was withdrawn. 

India, according to Trump, had “committed to stop directly or indirectly importing Russian Federation oil, has represented that it will purchase United States energy products from the United States”.  

However, after the conflict in West Asia, India’s dependence on Russian crude increased to record levels, and simultaneously, its imports from the US dropped from 13 percent in April 2025 to three percent in June 2026. Trump would surely have viewed this development as a trigger for action against India.

Generic Medicine Tariffs Deepen the India-US Trade Deal Standoff

India’s generic pharmaceutical industry faces uncertain times following President Trump’s post on Truth Social announcing his decision to impose a 100 percent tariff on all generic medicines from 2028, and increased to 200 percent a year by 2029. The objective of this proposed increase in tariffs is to “Reshore Generic Pharmaceutical Production into America, with a penalty to those Companies that decide not to build Plant and Equipment within the stated period of time given to them”. 

This announcement followed an earlier decision of the US President to impose a 100 percent tariff on patented pharmaceuticals and associated pharmaceutical ingredients from July 31, 2026, if the companies exporting them do not declare plans to start producing in the US. Thus, Trump has put in place an expansive plan to control the global pharmaceutical industry. 

Pharmaceuticals are the second largest products in India’s export basket to the US, accounting for about 13 percent of total exports in 2025-26. More importantly, the US is the largest export market for all major Indian pharmaceutical companies. 

The US accounted for about a third of the total sales of most companies, but two Indian pharma companies — Dr. Reddy’s Laboratories and Zydus Life Sciences — are considerably more dependent on the US market: their shares of sales to the US were close to  50 percent in 2023-24. 

Besides, all the top Indian companies have invested in production capacities in the US through their subsidiaries, with the largest company, Sun Pharmaceutical Industries having 21 subsidiaries in 2025-26. 

Trump’s insistence that the generic pharmaceutical companies must invest in the US to escape 100 percent tariff in 2028 has had its desired effect as  Indian companies, including pharmaceutical companies have already announced their plans to invest over  $19.1 billion to increase their production capacities in the US. 

Only time will tell whether these investments will result in diversion of India’s domestic pharmaceutical production to the US, and the implication this could have on the availability of medicines in India.

Biswajit Dhar is Honorary Fellow, Institute of Chinese Studies, New Delhi. Earlier, he was Director General, Research and Information System for Developing Countries and  a Professor at the Centre for Economic Studies and Planning in Jawaharlal Nehru University, New Delhi.

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