By H. Srikanth
Trump’s tariffs on Indian goods have come into force. Initially, when Trump threatened to impose a 26% tariff on Indian goods and about a 145% tariff on Chinese goods, some sections in India expressed happiness, assuming that Indian goods in the US would become cheaper compared to Chinese goods. But Trump imposed an additional 25% tariff on Indian exports as a penalty for buying oil from Russia. Interestingly, the US imposed only a 30% tariff on China, although it buys more oil from Russia. The tariffs it imposed on Pakistan and Bangladesh are far less. This discrimination has come as a rude shock to Indian policymakers and the Trump admirers in India. Everyone has started wondering what had happened to the ‘bromance’ that existed between Modi and Trump. Where has all the bonhomie visible during the Aur Ek Baar Trump Sarkar and Howdy-Modi campaigns vanished? The two nations, who were once humming the song ‘Yeh Dosti Hum Nahee Chodenge‘, are now miffed with each other and singing the Bollywood number ‘Dost Dost Na Rahaa’. This twist in the relations between the two countries has become a subject of discussion in the media and policy circles. National and international experts are debating the reasons that prompted Trump’s harsh actions against India. There are interviews, talk shows and podcasts discussing whether the decision was motivated by personal reasons, or by calculated considerations of the US global interest.
Of course, Trump has personal reasons to grudge. Trump claimed he intervened and stopped the conflict between India and Pakistan from blowing into a full-fledged nuclear war. He declared he used tariff threats to force the two to stop the war. One does not know how far his claims are true. But in the current volatile political situation in India, it is politically suicidal for Modi to admit that India acted on Trump’s advice. Amidst the uproar in the parliament, Modi was forced to announce that no external forces influenced India’s decision to stop Operation Sindhoor. Officially, India has been maintaining the stand that it agreed to the ceasefire at the request of the Pakistani military establishment after India ensured that it achieved its goal of destroying the terrorist hideouts. In contrast, Pakistan did not deny Trump’s claims about intervention and even recommended Trump’s name for the Nobel Peace Prize. It is but natural for a megalomaniac and egotist like Trump to feel aggrieved when his ally refuses to give any credit to him.
According to some experts, Trump was disappointed to see that India, which is close to both Russia and Ukraine, did little to end the ongoing Russia-Ukraine war. The US contends that India took advantage of the war to buy crude oil from Russia at cheaper rates and made huge profits by selling the reprocessed oil to other countries. The US spokesperson alleged India abetted the Russia-Ukraine War by providing resources to Russia to arm itself against Ukraine. India’s active role in the BRICS is also not to the liking of the US. Although China is the largest importer of crude oil from Russia and active in BRICS, America cannot take action against China. But the US can do that to a relatively weaker ally like India. The US can blackmail only the weak, not the strong.
Apart from personal factors, some commentators held the US has its own strategic calculations in imposing higher tariffs on India. India’s total exports to the US, which include goods and services, is around $123 billion in 2023, with $83 billion in goods and $40 billion in services. That makes the US India’s single largest export destination. During the year, Indian imports from the US stood at only $75 billion, with $42 billion in goods and $33 billion in services. The US feels India has a trade surplus, and that it is not buying enough goods and services from the US. Even on the goods imported, the US contends India imposes higher tariffs on American goods, making them very costly. India also prevents American goods from entering agriculture and other related sectors. From India’s point of view, protectionism is needed for a developing country like India to protect native industry and agriculture. Ever since India went for liberalization, there has been a gradual reduction in customs taxes on foreign goods. But India cannot remove all restrictions, especially in sectors like agriculture, as that would have serious political implications. Justifying its position, India cites that even the American government also practices protectionism. But in international politics, where might is right, logic hardly matters.
Some think-tanks have argued that to America, ideological concerns of war and peace are secondary. The US is only acting pragmatically while deciding on the extent of tariffs on each country. It may accuse Russia and China of being authoritarian states. But it does not mind trading with them when its own interests demand. While all this talk about Russia-Ukraine was on, the US sent its emissaries to negotiate trade with Russia. Similarly, the US, despite its concerns about the growing power of China, cannot afford to impose higher tariffs on Chinese goods, as the American citizens depend on essential goods imported from China. Imposing higher tariffs on Chinese goods leads to inflation and many practical problems. China can withstand American pressure. American multinational companies working in China will face difficulties if China retaliates. Hence, despite strategic concerns, the US has to deal with China pragmatically. But this is not the case with India.
At one time, US policymakers believed in the ability to become an economic power and wanted to pit it against China. It was with that belief, the US included India as part of the QUAD and the US-led Indo- Pacific Strategic Alliance. However, of late, the US feels India has not risen to the level it expected. In economy and military strength, India is nowhere near China. True that the US and India have ideological and strategic commonalities. India may be a friend, but to the US, it has become a dispensable ally. Conversely, China is a foe, but it is indispensable. You can be harsh to a friend, but not to the enemy. Most likely, it is this realistic assessment, which made the US take a harsh decision on India. By imposing heavy tariffs on India, the US tries to communicate the message to its other allies that the US would not mind punishing even its friends if they went against the US interests. India, that way, appears to have become a soft target in the US game for hegemony in the fast-changing relations in the multipolar world.
What options are left to India? In the first four decades of independence, our economy was based on import-substitution, trade accounted for less than 10% of GDP. After liberalization, India sought to grow by emphasizing exports. Today, India’s trade revenues account for around 22% of the GDP. Over 15% of India’s exports reach the US. Talking about Swadeshi at this stage of economic development makes little sense. The increased tariffs on Indian goods, which now range from 50 to over 60% on some goods, are bound to make Indian goods less competitive in the US compared with Chinese, Pakistani and Vietnamese products. The US tariffs would adversely affect Indian export-oriented units such as textiles, seafood, handicrafts, jewelry, etc. In its own interest, the US avoided tariffs on pharma and IT products. As the tariffs cover only goods and not the services, Indian software companies are not affected now. Despite these small mercies, the US tariffs, if continued for a longer period, would affect the Indian economy. In the immediate future, one cannot expect any breakthrough in the negotiations between India and the US. India has to look for alternative destinations for exports. It has to strengthen its bonds with Russia, re-examine its relations with China and explore new trading partners. Only time will tell whether Narendra Modi will resolve the problems that his bosom friend has created for India.