Why Trump’s Russia sanctions Bill could effectively end India’s exports to US

UPSC Syllabus Topic: GS Paper 2 –Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

Introduction

Why Trump’s Russia sanctions Bill could effectively end India’s exports to US is rooted in the scale of penalties proposed and the legal strategy behind them. The Bill proposes a 500 per cent tariff on all goods and services imported from countries that continue trading in Russian-origin uranium and petroleum products. India, which imports Russian oil and already faces steep US tariffs, stands directly exposed. The timing of the Bill, alongside legal scrutiny of US tariff powers under IEEPA, further increases the risk for India’s trade, investments, and negotiating position.

About International Emergency Economic Powers Act (IEEPA)

1. Nature and scope of IEEPA: IEEPA is a US federal law enacted in 1977 that allows the President to regulate international trade after declaring a national emergency. It has been used to impose sanctions, restrict trade, and freeze foreign assets.
2. Evolution of US sanction powers: IEEPA replaced the Trading with the Enemy Act (TWEA)(1917) , which was meant for wartime use but continued during peacetime. Over time, IEEPA became the backbone of US economic sanctions against foreign states and entities.
3. Judicial challenge to tariff use: The Trump administration’s use of IEEPA to impose reciprocal tariffs is under legal challenge. Three US courts have already ruled against the administration, questioning whether such tariff powers fall within IEEPA.
4. New Bill changes the legal position: The Russia sanctions Bill provides direct legislative authority for tariffs. This bypasses judicial risks linked to IEEPA and strengthens the legal foundation for imposing extreme trade penalties.

India’s Concerns related to IEEPA and the Russia Sanctions Bill

1. Scale of tariff escalation: The Bill mandates a minimum 500 per cent duty on all imports from countries trading Russian oil and uranium. This level of tariff goes far beyond existing US trade actions.
2. Risk of export collapse: India’s exports to the US are valued at over $85 billion annually. Trade experts state that a 500 per cent tariff would make Indian goods commercially unviable and effectively end exports to the US.
3. Existing tariff pressure already high: India already faces 50 per cent US tariffs, which are hurting labour-intensive sectors. Textiles, footwear, and marine products are among the most affected.
4. Absence of trade agreement protection: India has not signed a trade deal with the US. This leaves New Delhi without exemptions or safeguards against unilateral US tariff actions.
5. Uncertainty over product coverage: The scope of the Bill is unclear and may include products currently excluded from reciprocal tariffs. Items such as electronics, pharmaceuticals, coffee, and tea face fresh uncertainty.
6. Threat to fast-growing export segments: India has continued exporting mobile phones due to earlier exclusions. A broader interpretation of the Bill could disrupt this fastest-growing export category.
7. Weakening of negotiating leverage: As access to the US market shrinks, India comes under pressure to diversify exports quickly. This weakens India’s bargaining power in trade negotiations with other partners.
8. Impact on ongoing trade talks: India is negotiating trade deals with the European Union, ASEAN, GCC, EAEU, Canada, SACU, Australia, Chile, Peru, and Bahrain. A weaker position can lead to steeper demands from partners.
9. Pressure on sensitive sectors: India has maintained firm red lines on agriculture and dairy in trade talks. A weaker negotiating position increases pressure to dilute these protections.
10. Investment uncertainty beyond trade: US tariffs have affected not only goods exports but also investment flows. Investors are delaying decisions due to uncertainty around the India–US trade relationship.
11. Stress on capital flows: A 2025 Bank of America research note states that US tariffs have stalled FDI, FPI, and debt inflows. Capital flows remain a key vulnerability for India.
12. Rupee and macroeconomic pressure: The rupee has weakened nearly 7 per cent in one year, leading to over 9 per cent real effective exchange rate depreciation. This weakness is linked to capital flow pressure and trade uncertainty.

Comparative Disadvantage vis-à-vis China

1. Lower export diversification: India’s exports are not as diversified as China’s. This limits India’s ability to redirect trade when faced with US tariffs.
2. China’s resilience under tariffs: Despite US tariffs, China recorded a $1 trillion trade surplus in 2025. Its strength in sunrise sectors and control over critical minerals provides resilience.
3. Technology gap in exports: Indian exporters state that Indian goods are being replaced by foreign products due to lower technology intensity. This weakens India’s ability to withstand tariff shocks.
4. Strategic leverage difference: China, the largest buyer of Russian oil, has multiple economic and strategic tools to counter US pressure. India lacks similar leverage.

Way Forward

1. Pursue a trade agreement with the US immediately: India should urgently negotiate a trade deal or interim trade arrangement with the US to secure tariff relief and exemptions. The Russia sanctions Bill gives clear legal backing to extreme tariffs, leaving little scope for judicial reversal.
2. Reduce dependence on the US market:India must deliberately diversify its export markets to limit vulnerability to unilateral US trade actions. Heavy reliance on the US has magnified the impact of tariff shocks.
3. Restore investor confidence through trade clarity: Uncertainty over tariffs has stalled FDI, FPI, and debt inflows and weakened the rupee. A clear trade framework with the US is necessary to stabilise capital flows and macroeconomic conditions.
4. Actively promote multipolar economic arrangements: India should push for a multipolar global economic order to counter unilateral coercive trade practices. This is necessary in a context of weak multilateral institutions and concentrated economic power.
5. Address domestic structural weaknesses: Low manufacturing share, high unemployment, weak private investment, poor research output, and under-utilised PSUs have increased India’s exposure to external shocks. Structural reform is essential to reduce trade dependence.
6. Build durable domestic and international coalitions: India should move beyond transactional diplomacy and build bipartisan consensus at home and collective platforms with the Global South. Coordinated positions strengthen resistance to external economic pressure.

Conclusion

The Russia sanctions Bill turns US trade policy into a powerful economic weapon with serious spillovers for India. A 500 per cent tariff threatens exports, investments, and currency stability. With limited diversification and no trade agreement with the US, India faces high vulnerability. The episode exposes deep structural weaknesses in export competitiveness and negotiating capacity.

Question for practice:

Discuss how Trump’s Russia sanctions Bill could affect India’s exports and trade position with the United States.

Source: Indian Express