Modeling the Macroeconomic Impacts of the 2025 Us-India Trade Confrontation

Abstract

The US-India tariff conflict that started increasing the tariff on the fundamental Indian exports to 50 percent in August, posed significant economic challenges when considering the augmentation of geopolitical tension. The impacts of this study are quantified by empirical visualizations and econometric models, which focus on trade diversion, losses in the various sectors as well as macroeconomic spillovers. Using the statistics of the United States (US) Census Bureau and the Reserve Bank of India (RBI) until September 2025, it is noted that the US imports are turning into the arena of Vietnam, Bangladesh, and Pakistan compared to India. There is a threat of monetary loss and laying off of workers due to the projected drops in exports of labour-intensive sectors and the rupee depreciated by 2.3 per cent, and this led to the spike at +0.55 Indian Rupees, after the tariffs. To examine trade diversion, econometric analyses have been done, and using Ordinary Least Squares (OLS) regressions as a measure of currency and sectoral pass-through have been evaluated. Besides quantitative results, a word cloud created using 500 chosen tweets on X presents a picture of the perception of people, revealing such themes as boycott, Modi toughness, Trump tariffs, Swadeshi, losses of jobs which are indicators of a nationalistic response and of an economic concern. The policy proposals imply that the limitation of global trade disputes and global oil shipping problems have to be reduced through policy interventions by RBI and industry exemptions. We consider the long-term developments of this conflict in addition to the direct impacts of this war on trade. We have recorded the heightening of tariffs and retaliations which have worsened the strains of the two countries. Also explored in the study are the implications of the human capital such as interrupting Indian student placements at US universities and processing of H-1B visas. Such moves endanger both the knowledge transfer and skilled migration patterns estimated at approximately between $8 billion annually. Moreover, we have assessed the strategic change of India to China. These results show that the issue of tariff warfare is not confined to business functions, but it creates an impact on education, labour movement, and geopolitical issues.