Tit for Tat. Trump Tariffs and Indian Response

There is no permanent friend and permanent enemy in foreign relations. It is only mutual benefit and respect that guide foreign relations. The USA is a notable case study for this. Donald Trump was reelected as the President of the USA. After he assumed the office, there was a change in the stance of dealing with the world, particularly India. Trump threatened with reciprocal tariffs and visa tightening. All these are to arm-twist India, attack its sovereignty, and influence it to mould India into their side.

USA actions are not limited to the economy. It will have its spillover across the spectrum and not be limited to India. India, in its right to prevent its sovereignty, is sailing the situation with caution.

The situation creation..

India is an emerging power globally. It has the highest economic growth rate among major economies. It has established its presence in the space sector with numerous successful launches and landings. The technology in the defence sector is showing promising and reliable intent. India is not only a rule-taker but also making an imprint in a rule-based global world order. The USA, which is the biggest economy in the world, can not digest another power centre. A growing and powerful India will create a problem for the USA’s hegemony.

The world order is changing. It is not a unipolar world now or a bipolar one. The USA is well aware that India is also an important player. It wants to project India on its side, and if not possible, as a junior partner of the USA. India does not seem to accept any of the roles. It wants a free world and a multi-polar world without any undue pressure and sanctions. It is against the interests of the USA, and it is trying to arm-twist and put pressure on India; it is using different tactics. The USA is touching the red line of India’s sovereignty. Donald Trump was calling for mediation on Kashmir, which India clearly denounced. It is stated by India that the Kashmir issue is bilateral. The USA is trying to be seen as Big Brother in many recent events. The President said the Indian economy is a dead economy. He tried to keep India and Pakistan on the same page and referred to both as equals. In the ceasefire of the operation, sindoor president Trump was taking credit for stopping the war. It is the pressure of trade with the USA that stopped the war. India unequivocally denies that claim time and again. This is wiping out the candidacy of Trump for the Nobel Peace Prize. There were some past events which antagonised Trump. When the USA was planning to leave Afghanistan in his first term, He asked for the Indian troops in Afghanistan, which was rejected by the Indian government. This does not allow him to leave Afghanistan, and later, the Biden administration did that. Trump wanted to sell F-16, which again was not accepted by the IAF. All these visible impacts are some of the causes of the recent tariff. With the recent pitch, India is funding the Ukraine war by buying Russian oil.  

What are the possible repercussions?

Indian trade with the USA is significant. The USA is the biggest trading partner with a trade surplus. It means exports are higher, which is better for the domestic economy and boosts production. USA imposed a tariff of 25% and an additional 25% for buying russian oil. Tariff was imposed by pointing to India as the tariff king, and the trade surplus is in favour of India. Sanctions were imposed for funding the war in Russia. Tariffs will make the import costlier. The price paid by the importer will be higher, and indian goods will become dearer in the market. The competitive goods from other countries will be cheaper, and importers will move to them. Tariffs will make the price of Indian goods higher, which will reduce their demand. The importer will reduce the demand for Indian goods.

The Indian industry, which exports to the USA, will face the impact. It will lead to a reduction in production and the layoff of lakhs of employees, creating economic problems in the country. The impact will not be limited to a few industries, but the shock can be felt across the spectrum, not limited to agriculture, different raw material industries, transportation and services.      

Tat by India

India is a nation that has a history of bravery and fighting the odds for its sovereignty. India and the Prime Minister said many times that the country will not yield to pressure. It will safeguard its sovereignty, shield its economy and protect its marginalised sections. India started its outreach program. India is now engaging with China. Recently, many visits by the diplomats concluded. Defence Minister, NSA and Foreign Minister visited China in a very short period of time. The Foreign Minister of China also visited India, and there is a scheduled visit of the PM to China for the SCO meet. Though China can not be trusted, as we have many issues with them, including border disputes, CPEC in POK and dumping of goods. India went out with compartmentalisation of relations and dealing with every matter separately. Now is the time for both to address economic problems.  

India is reaching out to every corner of the world and meeting with like-minded countries. India-Russia relations are time-tested. India is also reaching out to African countries. PM will visit Japan, and Japan is investing heavily in the indian infrastructure and technology. FTAs have been signed with the EU, and the UK will leverage the trade to these regions. India is looking for new markets and diversifying its export basket.

Reform the Anti-Reform Movement.

This is the right time to gear up and take bold decisions to make the Indian economy attractive to investment and competitive in the world. Do reforms in the manufacturing sector to boost production capacity. It will need structural reforms in the agriculture sector, labour market reforms and facilitate ease in operation and investment. Increase manufacturing competitiveness so that our product can compete in the global market. MSMEs are the lifeblood of the Indian economy. Promoting manufacturing in MSMEs will help boost production capacity, and at the same time, they make the economy resilient.

Equations

India is a power centre today that no one can neglect. It has the biggest market, potential of investment destination and workforce provider for the world. India is not a junior partner to anyone and protects its sovereignty. India will need to diversify its export basket and align the world against this economic aggression. It is a matter of time, and the dust will settle down.

Divyanshu Vishen

(views expressed are personal)