India Refuses to Bend to Bully's Dictates

Days after he signed an executive order imposing a 25% duty on Indian goods, US President Donald Trump threatened to “substantially” increase tariffs on Indian goods as a penalty for buying Russian oil and weapons. He did not waste much time announcing the additional 25% penalty tariff, bringing the total to 50% duty on exports of Indian goods to the US, which stood at around $90 billion in 2024. This is among the highest the US charges on any trading partner and the highest in Asia. A 50% tariff is akin to a sanction on trade between the world's largest and fastest-growing economies. 

Soon after Trump’s threat, which took the entire of India by surprise, the Modi government pushed back. In a strongly worded statement, the Modi administration defended India’s energy strategy, stating that the country's crude oil purchases from Russia are “a necessity compelled by global market conditions” and not a political endorsement of Moscow. 

The no-holds-barred statement from India’s external affairs ministry didn’t stop there. It stated that India began importing from Russia because traditional supplies were diverted to Europe following the outbreak of the conflict between Russia and Ukraine, and that the US, at that time, actively encouraged such imports by India for strengthening global energy market stability. India stated that its imports were intended to ensure predictable and affordable energy costs for the Indian consumer, and they are a necessity compelled by the global market situation. 

“However, it is revealing that the very nations criticising India are themselves indulging in trade with Russia. Unlike our case, such trade is not even a vital national compulsion. In 2024, the EU had a bilateral trade of €67.5 billion in goods with Russia. In addition, it had trade in services estimated at €17.2 billion in 2023. This is significantly more than India’s total trade with Russia that year or subsequently. European imports of LNG in 2024, in fact, reached a record 16.5 mn tonnes, surpassing the last record of 15.21 mn tonnes in 2022. Europe-Russia trade includes not just energy, but also fertilizers, mining products, chemicals, iron and steel and machinery and transport equipment,” the statement said. 

India did not spare the US as well. “Where the US is concerned, it continues to import from Russia uranium hexafluoride for its nuclear industry, palladium for its EV industry, fertilisers, as well as chemicals. In this background, the targeting of India is unjustified and unreasonable. Like any major economy, India will take all necessary measures to safeguard its national interests and economic security.”

The bonhomie between the two nations was gone for a toss. At stake was half of India’s exports to the US, its largest trading partner. Economists believe that the damage was not significant to trade, but rather to jobs that India so desperately needs to create to reap its demographic dividend. The crushing tariff has put India at a disadvantage in terms of export competitiveness compared to China, and Modi’s ambition to transform the country into a major manufacturing hub has received a severe jolt. India’s GDP is projected to decline by 40 basis points, and the trade deficit is expected to widen. The ongoing negotiation for a bilateral agreement took a back seat. The ambition of taking bilateral trade relations to $500 billion by 2030, woven by Trump and Modi, is now a distant dream. 

Several thoughts are circulating about what prompted President Trump to take such punitive action against India. While his friendship with Modi is well known, Trump has, on numerous occasions, been vocal about India’s “impossible to trade” tariffs. He has even described India as the “tariff king.” Buying oil and weapons from Russia is the stated reason, but there are more that the eyes cannot see, probably. 

American multinational investment bank and financial services company Jefferies said, “Tariffs (on India) are primarily the consequence of the American president's 'personal pique' that he was not allowed to play a role in seeking to end the long-running acrimony between India and Pakistan. India has never accepted third-party intervention in its relations with Pakistan, and this remains a “red line” despite the economic costs of depriving the 47th American president of one of his opportunities to win the Nobel Peace Prize.” 

Trump has repeatedly claimed in public that he had solved the Indo-Pak military conflict. It also came to light that Pakistan was ready to nominate him for the Nobel Peace Prize, and the Indian Prime Minister Modi should also consider doing the same.  Modi’s refusal to accept Trump’s role in defusing the conflict played an outsized role in roiling the relationship between the two nations. 

Agriculture is also another sticking point between India and the US, Jeffries said, adding that no Indian government, including the current one, is willing to open up the agriculture sector to imports “because of the severe consequences it would have on millions of people.”

Essentially, Trump’s tariffs are part politics and part economics. Geopolitical clout always plays a pivotal role in bilateral or multilateral trade relations, and here was also no exception. India has since then struck the right chord, attempting to expand and deepen its export destinations while strengthening its domestic manufacturing through the 'vocal for local' initiative. The proposed GST rate cuts are also expected to provide a boost to consumption. 

The first quarter GDP number has been reassuring. Braving all odds, the economy has maintained a resilient growth trajectory, with real GDP increasing by 7.8%. Nobody should have any iota of doubt that the most populous country will survive on its own strength, no matter what may its way.