Yearender 2025: How India managed tariffs, conflicts, and diplomatic wins

At the same time, prospects for an India-US trade pact appeared strong, while New Delhi also pressed ahead with other regional or free trade agreements with the UK (July 2025), the European Free Trade Association or EFTA (came into effect in October 2025), Oman, and concluded talks with New Zealand (both in December 2025).

Beyond trade and tariffs, the year saw strain in India-US ties, further dip in India-Bangladesh relations, and military confrontation with Pakistan. In West Asia, heightened tensions among Iran, Israel, and the US culminated in a 12-day war, while the Gaza ceasefire appeared to hold. 

But how such developments unfolded and defined the arena of international relations in 2025? Let’s explore.

On trade and tariffs

Notwithstanding the steep US tariffs of up to 50 per cent, Delhi stood its ground on its ‘red lines’, and intensified efforts to fast-track free trade agreements with other countries. 

In July, India and the UK signed the Comprehensive Economic and Trade Agreement (CETA). As part of the agreement, the UK eliminated duties on almost every Indian export, while average Indian duties on British goods dropped from about 15  per cent to just 3 per cent on 90 per cent of tariff lines.

Duty-free access to the UK market was seen as boosting labour-intensive sectors (textiles, footwear, leather products, marine products, toys, sports goods, and gems and jewellery, which were hit hard by the US tariffs) and contributing to the integration of MSMEs in the global value chains. 

In March, India signed a trade agreement with the four-nation European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway and Switzerland. The deal brings in $100 billion in investment and aims at generating 10 lakh jobs over 15 years. In return, the EFTA secured enhanced market access for their pharmaceuticals, chemical products, minerals, and other goods at lower or zero duties.

In December, India concluded negotiations on a free trade agreement with New Zealand and signed a trade deal with Oman. As part of the negotiations with New Zealand, India secured zero-duty market access on 100 per cent exports, and agreed to reduce tariffs on 95 per cent of imports. But given the lopsided nature of the tariff rates, at about 2.3 per cent in New Zealand and over 15 Per cent in India, the former also “committed” $20 billion investments into the latter. 

On the other hand, Oman offered India zero-duty access on 98 per cent of its tariff lines as part of the Comprehensive Economic Partnership Agreement (CEPA), which is expected to improve competitiveness for Indian industrial exports. In addition, India’s service sector could benefit the most from the deal, as Oman’s substantial global services imports amount to $12.52 billion.

At the same time, negotiations with the European Union (EU), Canada, as well as the US are underway. But given issues around America’s steep tariffs on key Indian exports and the EU’s carbon tax, trade negotiations with them are likely to roll out into 2026. 

India-US ties became a common refrain

Nonetheless, following the latest round of the high-stakes meeting between India and the US, the likelihood of a trade pact is high, at least from New Delhi’s perspective, as the trade dynamics have changed since both countries first began negotiations in February. 

The high goods trade deficit between the US and India has been one of the most prominent concerns raised by US President Donald Trump. Surge in India’s imports from the US –  from $3.6 billion in August to $4.84 billion in October – was seen as addressing the same. 

On the other hand, India’s export to the US declined from $6.86 billion in August to $6.30 billion in October since 50 per cent US tariffs (25 per cent for importing Russian oil) came into effect in August this year. Export’s decline was most pronounced in labour-intensive goods such as garments, footwear and sports goods.

In the meantime, India stood its ground around the agriculture and dairy sectors, resisting the US demand to open its market for genetically modified (GM) products. In this context, it may be noted that in its trade deal with the UK, New Delhi excluded several high-sensitivity agricultural products from any tariff concessions. Similarly, despite New Zealand being one of the largest exporters of dairy products, India has kept dairy in the exclusion list.

All the while, India’s hope for a steady differential between the US tariffs on China and India was dashed, with New Delhi becoming the hardest hit country from the tariffs as Washington lowered its tariffs on Beijing in November 2025 following a trade truce. The situation prompted criticism of America for alienating a key strategic partner and counterweight to China. 

Turmoil in the neighbourhoods

In comparison, India-China relations have been relatively stable for over a year since the two sides agreed on disengagement and patrolling arrangements along the LAC in October 2024. But Delhi’s ties with Dhaka have suffered since Sheikh Hasina’s ouster on August 5, 2024. 

The ties faced fresh strain amid escalating tensions in Bangladesh following the death of youth leader Sharif Osman Hadi and protests in India over the killing of a Hindu youth across the border. Delhi and Dhaka summoned each other’s envoys on December 23, 2025 in a tit-for-tat move to express concern over the situation.

However, one of the most serious and concerning developments in 2025 was the four-night military confrontation between India and Pakistan in May in the aftermath of the April 22 terror attack in Jammu and Kashmir’s Pahalgam that left 26 people dead. 

The fear that the military confrontation might escalate to a full-scale war between the two nuclear powers, however, was put to rest when the two sides agreed to stop firing and military action on May 10. 

But a dramatic development came with US President Donald Trump claiming that he averted the full-scale war and brokered the ceasefire by offering both nations trading access with the US. India consistently maintained that the stoppage of firing and military action was worked out “directly between the two countries”, while Pakistan acquiesced.  

Soon after, President Trump sharpened his words on India, announced penalty tariffs for its trade with Russia, sealed a trade deal with Pakistan and said Washington will work with Islamabad to develop what he described as the South Asian nation’s “massive oil reserves”. Trump’s words triggered fear that it might undo the hard work that had made the two countries “strategic partners” and had been framed as the “defining partnership of the 21st century” by former US President Barack Obama.

Surprising turn in Pakistan’s relations with US, Saudi Arabia  

Growing bonhomie between the US and Pakistan – evident in the trade deal and an agreement that Pakistan inked with World Liberty Financial Inc (WLFI), a crypto firm majority-owned by Trump and his family, and a special luncheon hosted for Pakistan’s army chief Field Marshal Asim Munir at the White House – emerged as yet another irritant for India.

Against this backdrop of the US, alongside China and Russia, expanding influence in its neighbourhood, India recalibrated its Afghanistan policy and upgraded its Technical Mission in Kabul to a full-fledged embassy.

But a defence agreement between Saudi Arabia and Pakistan sparked serious debate, with both sides hinting at potential nuclear cooperation and asserting that “any aggression against either country shall be considered an aggression against both”. Murmurs of discontent were heard in New Delhi but analysts argued that since the agreement lacked specific commitments, it might not be credible enough to influence radical change and deter regional adversaries of either country. 

Notably, the defence pact came just eight days after Israeli strikes in Qatar and underscored the growing security concern in the region, specifically in view of Israel’s offensive. 

Tensions in West Asia and implications for India

The year 2025 witnessed Israel’s growing offensive in West Asia: alongside its war on Gaza for more than two years, Israeli offensive against Iran in June, called Operation Rising Lion, heightened fears of a wider conflagration with serious implications for India’s interests in the region. 

For instance, any such conflagration could put India’s regional connectivity strategy, like the India-Middle East-Europe Economic Corridor, the International North South Transport Corridor, and the Chabahar port, at risk. Trade and commerce, energy imports, and Indian expatriates are other vital concerns for New Delhi. 

An explosion is seen during a missile attack in Israel’s capital city of Tel Aviv in June 2025. (AP photo)

However, after 12 days of war, Israel and Iran accepted a ceasefire brokered by the US and mediated by Egypt and Qatar. Trump’s 20-point Gaza peace plan (it came into effect on October 10), which apparently halted Israel’s war in Gaza, was yet another notable development in the volatile region of West Asia. 

By the end of the year, Trump’s peace plan appeared to hold somehow amid harsh Israeli siege on Gaza and expansion of settlements in the West Bank. Trump’s Gaza peace plan was also seen as an ostensible attempt to ease tensions with Qatar, following Israel’s attack on a residential compound in Doha in September, where Hamas’s negotiating team was discussing a previous US ceasefire proposal.

The Israeli attack on Qatari territory was seen as a violation of its sovereignty and triggered an angry Arab response, raising questions over the viability of US-led security architecture, particularly for the Gulf Cooperation Council (GCC) states, which host some of the largest American military air bases in the region. 

Against this backdrop, India’s growing footprint in the region became visible. This year, External Affairs Minister S Jaishankar’s visit to Israel amid the PM’s visit to the region underlines that India’s partnerships straddle regional divides. 

The PM’s visits brought to the fore different critical policy strands — security in West Asia, economic development of Africa, and connectivity in the Indian Ocean. However, in view of the surprising turn in Saudi-Pakistan relations, the US attempt to draw the Pakistan army into the West Asian security arrangements, and both China and Pakistan stepping up their activity in the region and the Horn of Africa, it is argued that Delhi can’t take the region for granted.

When Global South set the agenda of G20

Last but not least, the first G20 Leaders’ Summit hosted by South Africa made headlines across the world. Notwithstanding the boycott by the US, the G20 Summit adopted a consensus declaration focusing on the climate crisis, debt relief for developing nations, and global inequality.

Addressing the summit, PM Modi underlined the growing threat of narcotics, especially fentanyl, and called for a G20 Initiative on Countering the Drug–Terror Nexus, stressing the need to dismantle the “wretched economy” that fuels both terrorism and the drug trade. He also called for a global compact on Artificial Intelligence to prevent its misuse in deep fakes, crime, and terror activities.

G20 leaders also highlighted the growing need for reforms in global institutions like the UN Security Council and development banks to better represent the Global South. Analysts noted that the summit on African soil marked the culmination of a significant three-year arc in which the Global South set the G20 agenda, with India (2023), Brazil (2024) and South Africa (2025) forming a rare sequence of leadership. 

However, as the baton passes to the US in 2026, the question is whether the momentum built by these Global South presidencies can be sustained, or whether the forum’s focus will swing back toward the priorities of the West.

Share your thoughts and ideas on UPSC Special articles with ashiya.parveen@indianexpress.com.

Click Here to read the UPSC Essentials magazine for November 2025. Subscribe to our UPSC newsletter and stay updated with the news cues from the past week.

Stay updated with the latest UPSC articles by joining our Telegram channel – IndianExpress UPSC Hub, and follow us on Instagram and X.