Trump’s tariff shock puts India in a tight spot but it has space to manoeuvre
US President Donald Trump has put India in a tight corner. The 25% tariff that he says he’ll impose on US imports from the most-populous nation isn’t significantly higher than the rates he has announced for Southeast Asian countries like Vietnam, Indonesia and the Philippines. But there is a catch: a penalty that will punish New Delhi for its “most strenuous and obnoxious” non-tariff barriers—and for buying Russian military equipment and energy.
The quantum of the retribution was not specified in the president’s Truth Social post, even though the new tariffs are scheduled to come into force from Friday. Therefore, my first reaction is that it’s a bluff—a bargaining tactic. Trump seems to want last-minute sweeteners thrown into whatever trade deal India’s negotiators have put on the table.
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Trouble is, any concession to dodge the blow will give ammunition to [the opposition in India’s political arena]. Trump has repeatedly said that he brokered a ceasefire in the recent India-Pakistan military standoff by offering trade deals to the nuclear-armed neighbors. That’s embarrassing for New Delhi; its long-time policy has been to reject any international interference in disputes with Islamabad. Just this week, the leader of the opposition, Rahul Gandhi, dared Prime Minister Narendra Modi and his ministers in parliament: “If he has the courage … let them say here that ‘Donald Trump, you are a liar’.”
It’s been four months since Trump’s ‘Liberation Day’ package. The deals he has announced since then have, with the exception of China, generally seen a reduction from the reciprocal rates he announced 2 April.
Vietnam got its 46% tariff slashed to 20%; Indonesia saw its 32% tax cut to 19%. The EU and Japan, too, managed to get some discounts.
In India’s case, however, even assuming a modest 5% penalty for alleged bad behaviour, the original sticker rate of 26% will go up to 30%. Taken together with the US claim on the ceasefire, it wounds national pride.
For the US leader, however, threats and inducements are a source of leverage. “Pakistan and the United States will work together on developing their massive Oil Reserves,” Trump wrote on social media on Wednesday. “We are in the process of choosing the Oil Company that will lead this Partnership. Who knows, maybe they’ll be selling oil to India some day.”
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So what can India offer to appease Trump without [the government’s image taking a blow]? New Delhi can safely junk the elaborate certification it put up in recent years to check the quality of everything from the imported polyester in Nike gym shorts to the metallic water bottles on sale at Amazon’s local marketplace. Those restrictions—a replay of its old socialist-style ‘Inspector Raj’—claim to protect consumers from inferior goods. In reality, they only serve the interest of local tycoons.
Similarly, it won’t hurt to allow genetically modified (GM) variants of corn and soybean, the two biggest American farm exports by volume. India’s own agriculture is ripe for reform: It’s time to follow China’s lead and start giving farmers the freedom to grow GM food.
But India has to hold the line on dairy imports and biofuels. Washington will have to accept that the milk, butter and cheese sold in India can only come from animals that have not consumed feeds containing “internal organs, blood meal, or tissues of ruminant or porcine origin.” No Indian government can afford to sacrifice a core cultural value of the nation’s vegetarian population.
Nor will local motorists welcome American biofuels. Some are already worried about the engine life of their vehicles after recent media reports suggested that the Indian government might raise its existing mandate of mixing 20% bio-ethanol in gasoline to 27%. This blending is meant to reduce India’s dependence on imported crude oil and for local farmers to get an additional revenue stream for their corn, broken rice, rotten potatoes, sugarcane and molasses. If corn grown in Indiana starts competing, the point of the programme will be lost.
Also Read: India should use Trump’s playbook on Trump for a fair trade deal
As for where 1.4 billion people should source their energy, crude oil shipments coming from Russian ports averaged about 1.3 million barrels a day last week, down from 2.1 million barrels at their peak in May 2023. Ending these imports abruptly could raise pump prices and reignite inflation that has been subdued with nearly three years of high interest rates. Here, however, it’s possible to do a deal. ©Bloomberg
The author is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.
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