Trump’s terrifying tariffs

With trade negotiations failing to broker a deal by the July 31 deadline, United States President Trump has gone ahead with his threat and announced a stiff 25% escalation in tariff on India. He has also talked of imposing ‘a penalty’ for buying Russian oil and defence equipment. The August 1 tariff announcement has come as a jolt as it negates the tall talk of bipartisan interests in a region where the US had been on the lookout for a partner to counterbalance China.

The US being the largest trade partner—accounting for around a fifth of Indian exports—the tariffs are all likely to make Indian goods much more expensive for American buyers giving an edge to competitors from mainly South East Asia. Not this alone, the quantum of the penalty being unspecified, there is uncertainty about what more is likely to be imposed.

The tariff being more than what was being anticipated, Indian GDP will be facing headwinds and economists are predicting a 0.3% fall—from 6.5% to 6.2%—for the current financial year. This is certainly no good augury for the economy. Some hint of it is already available with stocks taking a plunge, small though, on Thursday.

India has had a trade surplus with the US for several years. The new trade tariffs will hit several sectors. While India exports goods worth $87 billion, the level of imports allow India a trade surplus of $45 billion, leaving a yawning gap. Indian textile have a stable foothold in the American market. The hike in tariff threatens the edge Indian garments have enjoyed in the American market.

A similar fate might befall the electronic industry where India-made cellphones enjoy a good hold on American markets. Indian gems and jewellery too claim a huge chunk of American clientele. Pharmaceuticals, leather and auto-parts and seafood too have robust demand. What this means is a stiff challenge for Indian manufacturers as well exporters.

India will need to avoid any knee-jerk reaction as the MEA is dealing with an occupant of White House known for his mercurial temperament and should pur sue quiet diplomacy. Following earlier turns of negotiations, India had reduced tariffs on goods like Bourbon Whiskey and motorcycles. But it seems these have failed to placate the MAGA campaigner. India is dealing with an unpredictable dealmaker.

The current demands pose complications. India can hardly concede the demand to cut off oil purchases from Russia and bowing to the US demands in this regard will only undermine the nation’s sovereignty. Russians killing Ukrainians is merely a red herring. Succumbing to demands of allowing import of farm products from the US is fraught with dangers like leav ing the vast population of farmers unprotected. India produces almost everything the native population needs and subjecting the farm market to foreign im ports only threatens the sustainability of the sector.

India’s latest outreach with China should be welcomed in the current context as ties with the United States remain in a flux due to the unpredictability of Mr. Trump. Nothing should be done to allow tensions to spiral as dealing with an unpredictable Trump is getting riskier. In the current scenario, India needs to build upon re sidual goodwill rather than making adversaries.