As Trump Turns On The Tariff Heat, India Is In A Tight Spot

As India braces for US President Donald Trump’s 50 per cent tariff shock that kicks in on Wednesday, at stake is India’s resolve to protect both its strategic and economic space. Prime Minister Narendra Modi at the moment is in no mood to oblige Trump. Modi is holding the line on opening up India’s agriculture and small industry sector, trimming but not halting Russian oil imports, and stressing the importance of self-reliance and Make in India in public speeches in the last few weeks.

The PM is off to Japan and later on to China to attend the Shanghai Cooperation Organisation (SCO) summit. It will be the Prime Minister’s first trip to China following the 2020 military confrontation in Ladakh. The move signals India’s intent to balance relations between Washington, Moscow and Beijing in the midst of the turbulence triggered by Trump’s tariff war on the world.

The cost to the Indian economy will be heavy. The US is India’s largest trading partner, and two-way trade between the two is around $190 billion annually. Reuters reported that the Indian rupee fell to a low of 87.68 against the dollar, and equity benchmarks also fell ahead of the new tariff regime set by the US. New Delhi can shoulder these exorbitant rates for a few months. But in the long term, unless a solution is found, it will spell disaster for the Indian economy.

Many of the exports are labour-intensive and could affect the livelihood of thousands of workers now employed in sectors like jewellery, handicrafts, shrimp exports and garments. The government is likely to lend it funds to sustain the industries, but in the long run, without finding alternative markets, the economy could go into a tailspin.

Yet giving in to Trump’s diktats is politically untenable for the Prime Minister’s image as a strong leader. Modi’s support base thrives on his tough, decisive leadership style. India is also trying to placate Trump with reports of over a billion dollars of defence purchases from the US to be finalised by September.

Modi Ignores Trump’s Call

Frankfurter Allgemeine, a well-known German newspaper, reported on Tuesday that Modi refused to take several calls from Trump in recent weeks. Neither the MEA nor the PMO have confirmed the news report. But it is quite likely that Modi would not risk doing so, considering Trump’s penchant for making private conversations public on his social media portal Truth Social. No one is sure what Trump would put out, and denying what he says would merely add another layer of distrust to the current fragile ties between the two countries.

Modi Promoting Swadeshi

In recent weeks, Prime Minister Modi has promised India’s farmers that he will continue to protect their interests, come what may, even at the cost of his life. His other mantra is swadeshi or self-reliance, something Jawaharlal Nehru, India’s first prime minister, had always emphasised.

“Let's embrace swadeshi with pride. The things that will be made here by Japan are also swadeshi,” the PM said on Tuesday, while addressing a gathering at a Maruti Suzuki production facility in his home state.

“My definition of swadeshi is very simple. I am not concerned about whose money is invested...whether it is a dollar or a pound, or whether that currency is black or white. But whatever production is done with that money, the sweat should be of my countrymen. Those products will have the fragrance of my country's soil,” he said.

Looking For Fresh Market Access

India, like the rest of the world, is looking to diversify its trade and work out trade arrangements with other countries. A bilateral deal with the UK is already in place. India is also reviewing the India-ASEAN trade pact of 2010 and upgrading it this year. It is in talks for an India-EU free trade agreement. During his trip later this week to Japan and China, economic cooperation will be on the cards. The process of normalising relations with China is already on.

During foreign minister Wang Yi’s visit last week, he promised to lift curbs on the export of rare earth minerals and other components required by Indian manufacturers. Both India and China will gain by closer economic co-operation between the two Asian neighbours. India is also exploring markets in Africa that have so far been relatively untapped.

Mistrust Of The US Will Affect Political Ties

The tariff war launched on India by Trump will be settled sooner or later, but the body blow it has dealt to over 25 years of hard work to build the relationship brick by brick by successive administrations in Washington and New Delhi will take time to recover. India’s distrust of the US is now deep-seated, considering that Trump’s unfair secondary tariffs on India are completely illogical. After the Alaska meeting between him and President Vladimir Putin, when he refrained from placing any more sanctions on Russia, he continued to slap India with secondary sanctions.

China, as is well known, buys more oil than India. But Trump does not want to displease President Xi Jinping. He also said on Monday that he could allow up to 600,000 Chinese students to study in American universities. There is talk of him visiting China later this year. All this does not augur well for India, especially as America’s befriending of India was to balance China’s rise in Asia. For New Delhi, Trump’s actions have come as a warning that Washington cannot be trusted.

"Trump  might settle with China, EU, Canada, and Mexico. Thereafter, target India and Brazil. Modi  will not  say mea culpa in September. Even if he were to do that, it might or might not work. The new Ambassador Gor will work hard to spoil relations," says Ambassador KP Fabian.

The new US envoy, Sergio Gor, who will also be Special Envoy for the region (Pakistan and Afghanistan), is not a career diplomat and has little idea about India or how diplomacy works. As a Trump loyalist, his task will be to push Trump’s agenda hard on India.