The US has raised tariffs on Indian goods to 50% because India has been buying Russian oil. This new increase adds another 25% on top of the existing 25% tariffs affecting items like garments, gems, footwear, furniture, and chemicals. Goods that are already on ships and heading to the US before the deadline will be exempt from these tariffs for three weeks. However, the new tariffs will apply to other shipments, but steel and aluminum will remain exempt.

US-India Trade Tensions

Talks between the US and India are not making progress, showing that tensions remain despite their alliance. The higher tariffs are impacting various sectors in India and causing economic stress. Now that the 50% tariffs are in place, we should prepare for increased market volatility, especially in areas linked directly to India. We might want to invest in volatility index futures because the uncertain trade discussions could lead to sharp price changes. This situation is more than just a tax; it’s a clear sign that diplomatic tensions are turning into market risks. We need to focus on shorting US companies that depend on Indian supply chains for products like garments, footwear, and chemicals. A good strategy would be to buy put options on major apparel retailers and specialty chemical companies that source heavily from India. Recent Q2 2025 earnings reports show high inventory levels from India, which will now be a major concern for these companies. This situation is significant because India’s exports to the US in these targeted categories exceeded $25 billion in 2024, based on recent trade data. This scenario is reminiscent of the early days of the US-China trade war that began in 2018, where sectors affected by tariffs struggled for months. We should expect a similar situation as companies work to change their supply chains.

Currency Market Impact

This trade dispute also impacts currency values, as it will likely weaken the Indian Rupee against the US dollar. It would be wise to consider taking long positions on the USD/INR pair, expecting that lower export demand will push the rupee down. The Indian central bank may attempt to support its currency, but ongoing trade issues usually overpower such efforts. We should look for alternative suppliers in countries like Vietnam and Mexico, which can take on some of the demand shifting away from India. We may see an increase in ETFs that track these emerging markets as they benefit from this change in trade patterns. This is similar to the supply chain shifts we observed during the previous administration’s tariff battles with China. The three-week exemption for goods already in transit gives us a short window, but it will lead to a supply shortage in late September 2025. We can expect a temporary excess as these goods arrive, followed by a sharp price rise and issues with inventory. This situation creates potential calendar spread opportunities in options for companies affected by these product flows. Create your live VT Markets account and start trading now.

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