NEW DELHI — As President Donald Trump was sworn in for a second term, Indian officials put a plan in motion to sidestep his promised trade war — launching high-level trade talks with their American counterparts, pledging new investments in U.S. energy and defense, and unilaterally slashing tariffs on key goods.

In the end, it made no difference.

India will be hit with a 26 percent tariff, Trump announced Wednesday, delivering a sharp blow to a country that relies heavily on U.S. export markets and is already gripped by economic stagnation. As other nations consider retaliatory measures, India has opted for restraint, still hoping to seal a broader trade agreement that might eventually deliver relief.

In a statement Thursday, India’s Commerce Ministry said it was “carefully examining the implications,” while emphasizing ongoing discussions over a “mutually beneficial” deal. Others in the country tried to find a silver lining, noting that some Asian competitors will face even higher rates.

But “there is no denying it — there will be a significant impact,” said Ajay Shah, an Indian economist who previously consulted for the Finance Ministry.

The pressure from Washington has reignited a long-standing debate in India over whether to open up its heavily protectionist economy. Some economists see the tariff squeeze as an opportunity to push through politically fraught trade liberalization. Others warn that India’s midsize and labor-intensive industries can’t afford the shock.

With no immediate respite in sight, exporters here are bracing for the fallout.

The effects may be most acute in the emerging smartphone market in India, which is home to 15 percent of Apple’s global production. The United States is also a vital market for Indian jewelry and agricultural exports, including shrimp, basmati rice and honey.

Exemptions given to pharmaceuticals offered relief to one of India’s most U.S.-dependent industries, and analysts said higher tariffs on regional rivals including China, Vietnam and Bangladesh could give India new export opportunities.

But the relative advantage will only matter if India institutes structural reforms, economists said. India has struggled to attract manufacturers looking to pivot away from China, partly because of high tariffs on required components. And other peer nations, including Malaysia, the Philippines and Brazil, could cut into any potential competitive edge.

India’s economy is struggling. Private investment and consumer spending are flat, and gross domestic product is predicted to grow at its slowest pace in years. “The timing is bad,” said Rajat Kathuria, an economics professor and dean at Shiv Nadar University. “Really bad.”

Until the last moment, India remained hopeful it could stave off the tariff hikes. Commerce Minister Piyush Goyal made multiple visits to Washington to engage with American officials, while assistant U.S. trade representative Brendan Lynch spent several days negotiating in New Delhi.

India unveiled a series of preemptive goodwill measures, reducing tariffs on some cars, motorcycles, electronics, solar components, chemicals and alcohol. It also proposed eliminating what is referred to as the “Google tax” on online advertisements, which Shah called a clear “olive branch.”

“India’s response is the most feeble because it is the weakest economy in the [Group of 20] and has the most to lose,” Kathuria said.

The U.S. is India’s largest trading partner, accounting for almost a fifth of its exports, resulting in a trade surplus of almost $46 billion in 2024.

India has long been one of the world’s most protectionist countries, only opening up its economy in the 1990s to avert a financial crisis. In 2023, India’s average tariff (not accounting for trade deals) stood at 17 percent, nearly six times the average U.S. rate, according to the World Trade Organization.

In 2019, Trump revoked India’s preferential trade status, prompting retaliatory tariffs from New Delhi. Subsequent trade talks faltered, with concessions offered by New Delhi viewed as insufficient by the first Trump administration, according to Mark Linscott, an early U.S. negotiator.

Trump has repeatedly singled out India for its high tariffs, including during a recent news conference with Prime Minister Narendra Modi — underscoring the limits of the nationalist leaders’ ideological alignment.

“Now we have a situation where the leverage being deployed is even more serious,” Linscott said. “A successful bilateral is long overdue.”

Both sides have set a fall deadline for a trade deal. Two people familiar with the situation, speaking on the condition of anonymity to share sensitive details, said Trump’s planned visit to India is contingent on its success.

Washington has made it clear that it expects India to implement sweeping trade liberalization, according to the two people, especially in agriculture.

“It’s time to do something big, something grand,” U.S. Commerce Secretary Howard Lutnick said last month, speaking virtually at an event in New Delhi. “Not product by product, but rather the whole thing.”

For some economists, the U.S. pressure represents a welcome and overdue catalyst for domestic reform.

“We have to reduce tariffs,” Kathuria said. “This is an opportunity for India to do something that it always wants to do, and has wanted to do, but is politically difficult to do. ”

The Modi government has signaled it is inching in this direction. In March, the Commerce Ministry urged Indian businesses to shed their “protectionist mindset.”

The challenge, Kathuria said, is that “the entire government seems to be captured by industry,” and Modi will probably be wary of alienating business leaders.

Shah is more optimistic, saying Modi has a rare opportunity to cast difficult changes as an essential jump-start. “We can’t change the U.S.; it is deeply messed up,” he said. “But a huge pro-globalization economic initiative? There is no better policy package to revitalize an economy that has frankly struggled ever since 2011.”

India is already looking beyond the U.S. as well, advancing trade negotiations with the European Union, Australia and Britain.

Other economists warn that fast, far-reaching policy changes could ultimately backfire, exposing India’s most protected sectors, particularly agriculture, to foreign competitors.

“If you open up the market, most domestic small enterprises will be pushed out,” said Amitendu Palit, an economist at the National University of Singapore. “The benefits will go to U.S. businesses.”

Ajay Srivastava, a former trade official, harked back to 2018, when India lowered trade barriers in response to U.S. tariffs on steel and aluminum and opened the floodgates to Chinese goods.

His advice now is blunt: “Do not look weak.” If Washington rejects India’s trade proposals, Srivastava argues, New Delhi should retaliate, following the lead of China, Canada and the E.U.

Raghav Chadha, a leader of the opposition Aam Aadmi Party, expressed consternation Thursday in Parliament that Trump had gone ahead with the tariffs despite India’s “unflinching loyalty and undying friendship to the U.S.” He suggested the government could withhold approvals for Starlink, Elon Musk’s satellite communications company, as a “bargaining chip” in negotiations.

However India responds, Linscott said, Trump is unlikely to budge on his demands. “The bottom line is that expectations on the U.S. side are not going to change,” he said.