Trump tightens the tariff screws again

It is not a tale of two cities but a tale of two countries. Borrowing Dickensian phraseology, it might be apt to say ‘it was the best of times’ in India–US relations when Dr Manmohan Singh was prime minister of India, ‘it was the worst of times’ when Narendra Modi was ‘Pradhan Sevak’ of a dubious Indian regime.

Whether his infatuation with the US began in boyhood or after he visited the country in 1993 to attend a US state department-sponsored youth leaders (indoctrination) programme, Modi has been so awestruck by America that he even brushed aside the insult of being banned from entering the US for a decade for his alleged role in the 2002 Gujarat pogrom.

He rushed to America within months of capturing power at the Centre in 2014. There followed a series of embarrassing embraces of US presidents, as if they were his long-lost friends, in an effort to ingratiate himself with them.

Barack Obama was polite, but hinted nevertheless that Modi had abandoned Gandhian principles. Joe Biden was patronising. Donald Trump tolerated the hugs in his first term; but, notably, offered to mediate between China and India — not activate the Quad partnership in India’s favour — when Chinese troops transgressed the Line of Actual Control into Indian territory in May 2020.

In Trump’s second term, Modi has clearly not been in his good books. When Trump calls Modi “a good friend”, he speaks with a forked tongue. His cavalier attitude towards India stems from knowing that Modi’s nervous grins and deferential behaviour in his presence translate to acquiescence.

Trump says he ‘heard’ India is no longer going to buy oil from Russia, calls it ‘good step’

On 30 July, Trump took to his favourite pulpit Truth Social to declaim: ‘While India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country. Also, they have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE — ALL THINGS NOT GOOD! INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A PENALTY FOR THE ABOVE, STARTING ON AUGUST FIRST. THANK YOU FOR YOUR ATTENTION TO THIS MATTER. MAGA!’

In effect, racing to Washington in February to make nice with Trump didn’t help. Officials below him will doubtless appeal to their US counterparts for a reconsideration, offering concessions to reach a trade deal to Trump’s liking. This may even work if Trump’s announcement is a bluff, which it could well be. But if it isn’t, then the decision will deliver a crippling blow to the Indian economy.

Which way will India turn? Where’s the scope to offset loss of trade with the US by expanding turnover with other countries? The US, in 2024, was India’s biggest trading partner, followed by China, the United Arab Emirates, Singapore, Saudi Arabia, Russia, Hong Kong, Germany, Indonesia and Iraq among the top 10.

China has been brazenly protectionist in terms of imports from India. It would be demeaning to ask China to open up its market to Indian exports, given Beijing’s overt support of Pakistan against Modi’s Operation Sindoor. It’s bad enough that the Indian external affairs minister S. Jaishankar has been pleading for a resumption of the Mansarovar Yatra.

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As for other countries, their markets are not big enough to absorb an exponential growth in Indian exports. The only alternative may be a pact with the 27-nation European Union, which has a combined population of 500 million and a higher per capita income ($43,145) than China’s ($13,303). But that’s another story.

US–EU trade deal

Trump was in Scotland, where his mother came from. He combined pleasure at golf courses he owns there with business, which included a meeting with the president of the European Union, Ursula von der Leyen. They agreed on mutual trade tariffs of 15 per cent, which was half of what Trump had threatened.

As a part of the deal, the EU committed to an import of energy from the US to the tune of $750 billion over the remainder of Trump’s term. Simultaneously, the EU will stop refineries in China and India, which turn Russian crude into petrol or diesel, from selling to Europe.

Nayara Energy’s 20 million tonne refinery in Gujarat’s Vadinar became the first victim of EU sanctions. The Russian oil major Rosneft has a 49.1 per cent stake in the company. The EU move is aimed at curbing Russia’s revenue to weaken its ability to fund its war against Ukraine.

By abandoning Manmohan Singh’s multi-alignment and tilting towards America, Modi converted China into thinking India was reneging on the spirit of the 1993 Peace and Tranquillity Treaty. Moscow began to twist Delhi’s arm. India’s proximity to Russia will continue to annoy the West, while slackening ties will endanger cooperation. Modi has effectively stationed India between the devil and the deep sea.

Modi has attached too little importance to the EU. A free trade agreement between the two has been in the works for over 15 years. Yet, notwithstanding the EU’s tough new stance against Indian oil refineries, only an explosion in trade with the EU can soften the blow Trump is threatening to inflict on India.

The Lindsey Graham factor

Lindsey Graham (70) is a virulently interventionist Republican senator from the state of South Carolina. In the past, he has labelled India ‘the worst’ country with respect to imposing high tariffs on American products. Graham is now trying to pilot a bill in the Senate to impose stringent sanctions on countries buying Russian oil. If he succeeds, Trump’s implicit threat on Truth Social could become explicit.

Refining Russian crude and selling finished fuel on the international market has become a big hard currency earner for India, on which the Indian balance of payments has become heavily dependent.

In July, Jaishankar told the press, “We have been in touch with Senator Graham… Our concerns and our interests in energy, security have been made [clear] to him…”

Graham had rather belligerently said, “Here’s what I’d tell China, India and Brazil: If you keep buying cheap Russian oil to allow this war [with Ukraine] to continue, we’re going to tear the hell out of you and we’re going to crush your economy, because what you’re doing is blood money.”

Of course, being ardently pro-Ukraine, Graham is not on the same page as Trump, who has been relatively soft on the Kremlin, though during his stay in Scotland, he issued another off-the-cuff ultimatum of “10–12 days” to Russia to at least reach a temporary ceasefire with Ukraine.

Ashis Ray can be found on X @ashiscray. More of his writing can be found here