It can be said that, the trade war launched by US President Donald Trump has had the most repercussions in India, both at the government and the people level. The decision to impose a 25 percent import tariff on Indian products from August 7 has officially become effective. Further, from August 27, when the 25 percent penalty for buying cheap oil from Russia also kicks in, the total will be 50 percent. The truth is that this will affect Indian industries and consequently the economy at large. Trump's justification for the first 25% is that it is aimed to protect American industry and the wider American economy. In the end, foreign products at a higher net price including the enhanced tax will find it difficult to compete on price with domestic products; and this will provide a better market for local products.
The additional 25 percent tax is of similar or more political significance. Trump has accused India of supporting Russia against Ukraine by buying cheap oil from Russia, a country now under US sanctions. However, the truth is that the same US and also the European Union countries do buy essential minerals, crude oil and other commodities from Russia. India has an economic perspective that is tied to its policy. It was a great relief to India to get Russian crude oil sold at a discount of $23 per barrel over Saudi oil. However, market data shows that the difference has now come down to $4.5 per bbl. India had abstained from a UN resolution condemning Russia for its invasion of Ukraine before the oil deal with Russia. At that stage, India was focused on pursuing a foreign policy that stopped short of antagonising Russia, even at the risk of a slight rift with the United States. India, the world's third-largest oil consumer, is estimated to have made a $5.1 billion profit on its oil purchases from Russia as of March. However, on the other hand India's total exports to the US in 2024 were worth nearly $117 billion. It is also necessary for India to ensure that such a large trade deal with the US is not harmed. The 1.8 million barrels per day that India buys from Russia is not a small volume either. However, the production of giant oil countries like Saudi Arabia is already in the market. In terms of crude oil, China would not be averse to buying Russian oil ignoring US sanctions. But then China is also keen to diversify its global sources of oil. Therefore, China would be somewhat wary of relying heavily on Russia.
Now, in the event of India deciding to impose counter tariff on imposed US products at some point, a logical prospect, it will also affect the US. The tariff war has not reached that stage yet. Now it is a phase of war of words. Part of this is Prime Minister Narendra Modi's statement that farmers will not be ignored in the matter of Indian agricultural, dairy and fish products. At the same time, the United States is demanding access to the Indian market for dairy products, corn, soybeans, almonds, and apples, which it has been negotiating during the Free Trade Agreement talks in parallel to the ongoing trade war - participation in Indian market that would benefit US farmers. The full impact of the tariffs can only be assessed when the outcomes of such discussions emerge.
In the recent US-China standoff, there was a period when the US tried to appease India to avoid India's inclining towards China in the balance of power equations. This was followed by some indications that Pakistan was being prevented from becoming China's ally. The US slapped a tariff of 19 percent on Pakistani products while it was 25 percent for Indian imports. In last June, after cancelling his meeting with Prime Minister Modi, whom he had called ‘my great friend’ Trump invited and hosted Field Marshal Asim Munir of Pakistan at the White House. Much of Trump's subsequent comments about India were accusative and pointed to a trade war. In India, the ruling parties to a great extent along with a strong opposition whole hog insist on not bowing to the US. That being the case, Modi government will have to opt for a path of confrontation. If this is to be avoided, the US will have to change its approach. Otherwise, a bipartisan consensus must be reached through deft diplomacy that avoids harming either side. On another level, the current situation may not continue after the Trump administration. At the same time, Trump's tariff war on the global stage may have a slow death too.