The Topsy
Turvy World of Coercive Trump Tariffs & Penalties And What India Can Do
About It
The US-India
relationship, called a geostrategic imperative for decades now, particularly in
conjunction with the rise of China as a challenger to US hegemony, seems to
have soured very suddenly.
What India
now does about the situation will define not only the bilateral relationship
going forward, the multilateral one in QUAD, and India’s standing in the world.
This, as it goes towards becoming the world’s third largest economy before
2030.
The answer
lies in a combination of retaliatory tariff hikes and even brand-new
impositions on American companies operating in India, for example in the
digital space, and diplomatic accommodation of American demands on trade
wherever possible.
Caving in
abjectly to US dictation has been swiftly ruled out. Perhaps the policymakers
in Washington have not properly assessed the determination and backbone of the
Modi administration. In response to the
near abusive tone adopted by Trump, unable to bully India into buckling under,
India has said it will act only in its national interest.
But having
said that, to take the relationship forward without a rupture, very skilful
give and take will nevertheless have to take place. Even an adversary like
China realises this in the midst of this tariff war with the US.
The Indian
stock market is not unduly perturbed because tariff impositions like this
cannot make too much of an impact in a country driven by its domestic economy.
This is the key difference between India and many other highly export dependent
countries.
Still, the US currently accounts for half of
all Indian exports, and till lately, the bilateral trade was expected to treble
to $500 billion by 2030. Unless repaired, the present figure of $ 150 billion,
with the balance of trade in India’s favour, could largely evaporate.
Instead of
it being thought of as the ‘plus one’ to China as the US seeks to create new
supply chains, other countries in South and South East Asia could assume this
mantle, albeit collectively. This would be bad for India as a historic
opportunity missed.
At the same
time, India’s stellar growth rate of about 6.5% in GDP year-on-year, the
highest amongst all major economies, could be impacted by up to 0.5% by US
tariffs at 25% on Indian exports.
This is not
counting as yet excluded sectors such as service exports, meaning software in
the main. Pharmaceuticals are also not included but tariffs on them have been
threatened. US pharmaceutical companies, which have Indian counterparts have
been brought under the US Food and Drug Administration (USFDA) scanner. These
include Aurobindo Pharma, Dr Reddy’s Laboratories, and Sun Pharma. Various
inspections are being conducted. But generic drug exporters, could face tariffs
next.
Then there
are as yet unspecified penalties for India’s membership of BRICS perceived as
an anti-US organisation hostile to using the US dollar as a global currency for
most trade. Does India need to really stay in BRICS which leans towards China,
or could it move away to a leadership of the Global South instead?
India wants
to promote its UPI but not get rid of the US dollar in favour of the Chinese
currency. It has made this clear on more than one occasion.
America is
also annoyed along with the NATO countries in Europe at India’s neutrality on
Ukraine and buying petroleum from war sanctioned Russia.
The Trump
administration also does not want India to buy armaments from Russia either
despite the great success of the S-400 and Brahmos missiles in the recent
Operation Sindoor against Pakistan.
We will know
the extent of the blow only when the penalties are specified, but it could be
well over 100%.
For now,
India has been subjected to one of the higher tariffs amongst its export
competitors, Vietnam and Bangladesh for example. These begin, in the absence of
its agreement to allow American dairy, GM seeds and agricultural products at
nil tariff into the country. The sectors gravely affected are textiles and
ready-made garments, plus gems and jewellery, which are all labour intensive.
India could
consider redirecting these exports via the UK with whom an FTA has just been
concluded at nil duty. The UAE, with which country India also has an FTA,
presents another route.
We do not
have tariffs like Vietnam for conducting third party exports either. India,
like others, and China before it, could look for circumventions too.
Even after
five rounds of face-to-face negotiations and a sixth meeting scheduled around
the 20-21st of August 2025 in Delhi, dairy and agricultural products
are sticking points. Will India be able to concede ground on some items within
this sphere, particularly in the processed foods area, to allow the Trump
administration to call it a win?
Of course,
the dairy and agriculture sectors are politically sensitive in India with rural
India, its farmers and others, constituting a very powerful voting block and
lobby, ever ready to march on Delhi in an instant. Still, certain items in the
detail which don’t pose a threat to Indian agriculturists could be allowed in.
An interim
trade deal could then result, and the punitive 25% tariffs would be overtaken.
A full agreement could come after at least a year when all issues have been
scrutinised and negotiated. America wants access to the Indian market and India
would be churlish to miss the chance to achieve a good FTA with America. This
more so with China as our main economic and military competitor next door.
India could
also further diversify its imports of oil and gas, looking father afield to
reduce its purchase of Russian product. This, provided lucrative deals better
than those on offer from Russia could be struck. Hopefully, the Trump
administration will not take an absolutist position and live and let live.
As for
armaments, can America supply what India needs quickly enough and at a
reasonable price? The US track record on the supply of GE 404 and 414 engines
for India’s hugely delayed Tejas 1A and 2A fighter programmes has been most
discouraging. Likewise, the Apache AH-64E combat helicopters on order are
vastly delayed for some years, the deal was signed in 2020. With only three out
of the six just delivered, and the other three promised by the end of 2025.
America is
also very expensive, slow on export permissions on its high technology
armaments, and reluctant to collaborate and transfer technology. It would have
to change all this, and be consistent going forward without using any of it for
leverage against India.
While Russia is immersed in the war in
Ukraine, it has continuously tried to support the Indian armed forces, and has
offered best terms on its advanced equipment with technology transfer. France,
Germany, the UK and Israel have also become defence partners with India and
provide alternatives to both Russia and America.
The
commercial Boeing aircraft on order by the private sector are also much
delayed, even as various Boeing aircraft in India and abroad are showing a lot
of technical problems, that even resulted in a major crash of a 787-8
Dreamliner at Ahmedabad recently.
Is the
American aviation industry slipping? The $100 million F35 is showing problems
with one stranded for over a month in India before it was repaired and another
crashed in America. Everything military equipment wise, if it comes from the
US, is most tardy. Yes, there is definitely room for give and take and
revisions of stance between the two great democracies.
(1,234
words)
August 1st,
2025
For:
Firstpost/News18.com
Gautam
Mukherjee
