Parsa Venkateshwar Rao Jr | India’s Options Few Amid Trump’s Tariff Tantrums

US President Donald Trump’s tariff aggression against India -- 50 per cent, of which 25 per cent is a punitive penalty for buying oil from Russia and making profits -- is full of drama, rhetoric and too many twists in the tale. First, there is Mr Trump’s description of India as the “tariff king”. The more intriguing one is when Mr Trump claimed that it was because of the 25 per cent extra tariff on India that Russia has agreed to talk about the Ukraine war. In a curious way, Mr Trump seems to think that one of the ways of pressuring Russia is to twist India’s arm!

Convoluted or contorted thinking? It certainly seems so! The India side of the Trump tariff story is one of gloom and doom. The United States is the biggest trade partner of India, followed by the United Arab Emirates. The India-US trade turnover is around $130 billion, of which India’s exports account for $85 billion and imports $45 billion. Mr Trump is surly because of the trade deficit of around $40 billion. Put these figures in context. India’s overall trade deficit is around $17 billion plus. The figure fluctuates. It can go up to around $30 billion when there is a surge in imports. What is America’s overall trade deficit? It is $918.4 billion in 2024. India’s overall trade deficit stands at $78.1 billion in 2024, a sharp decline from $121.6 billion in 2023. The differences are not astounding because America’s GDP was $29 trillion in 2024, and that of India was $3.9 trillion in the same year.

There has been a rising sense of panic in political and economic establishments across India. The clear skies with prospects of India’s speedier growth and becoming the world’s third biggest economy after the US and China, which was swelling the hearts of politicians and policymakers in the government, seems to have turned gloomy with Mr Trump’s nasty tariff moves! So, advice has been pouring from the experts’ quarters as to what needs to be done to respond to the crisis. One of them has been the negative, defensive one, articulated by Prime Minister Narendra Modi -- that India should become self-reliant. This has been the theme song since May 2020 -- with the onset of the Covid-19 pandemic -- and the phrase that was coined, of “Atma Nirbhar Bharat” (self-reliant India). This announcement was not backed by any argument, and no explanation was given. Finance minister Nirmala Sitharaman had once said, as quietly as possible, that “Atma Nirbhar Bharat” does not mean that we close our doors to the world. One of the themes behind this concept of a self-reliant India is the old “import substitution” policy pursued in the bad old socialist planning era. There were not many voices which spoke out against this discredited concept. Prime Minister Modi began to speak less and less of India becoming the global hub for this and for that. The nation’s thinking was suddenly on the backfoot. Mr Trump’s tariffs only deepened the economic blues.

There have been experts who have been making use of the Chinese saying that “every crisis is an opportunity”. They are saying that India should look to markets other than that of the United States. That is what many countries like Brazil have been doing for many years before Donald Trump had come on to the American political stage. Brazil has become the main exporter of soya beans, pork and beef to China, along with Argentina and Australia. Brazil’s soya beans exports have been growing steadily, and it had overtaken the US in 2013 as the largest soya beans exporter. India is not a leading exporter of farm products. Its forte is services, and it stands as the seventh largest exporter of services in the global pecking order.

The experts are raising the old chant of “reforms” to counter Mr Trump’s tariff policy. They are suggesting that this is a “1991 moment” for India again, and it should take a bold decision. But they have not specified which markets to tap, and which export products to promote. What the experts harking back to the 1991 magic moment are not willing to say is that India has to open up its markets, and that tariff barriers must be lowered, if not flattened altogether. The problem is that, like any other developing country, India wants to maximise its exports and minimise its imports. And to minimise imports, it maintains a differentiated tariff rate card, which hovers at five per cent in the telecom sector, and 35 per cent in the agricultural sector. So, when the experts call for “reforms” and the “spirit of 1991”, what do they really mean? Does it mean opening up markets more to global goods. There is already the complaint that India has become the dumping ground for Chinese consumer goods. Can India withstand the flood of imported goods while trying to push its goods and services in foreign markets? India doesn’t want to lose the $85 billion exports to the US. It is quite a major chunk of India’s total exports of $829.4 billion, but not too big. So, can India tap alternative markets and reduce its dependence on the American market? India has been focusing rather exclusively on the West -- the US, Britain and European Union countries. These three markets are in the shrinking mode. There has been much talk of “Look East”, but nothing positive has been done on that front. Southeast Asia and the Far East should be attractive propositions. There will be challenges. The competition is intense, the profit margins narrow compared to the West. Interestingly, India’s trade with Southeast Asia was $123 billion in 2024 -- exports were $41.20 billion and imports $79.67 billion. It is almost the exact reverse to that with the US.

Indian experts and policymakers, and the ruling party, have to decide what it is they want in specific terms. Their dreams of turning into a global manufacturing hub or the “pharmacy of the world” have to take some concrete shape. The new dream of being the global hub of the semiconductor industry has to be brought down to earth. There is a dangerous vagueness about the Narendra Modi government’s entire economic vision. And it gets ruffled by things like Donald Trump’s tariffs. The time has now come to talk specifics.