Trump's Tariff Threat Tests India-US Relations

The Hindu

11 hours ago

Published : Aug 16, 2025 19:25 IST - 6 MINS READ
There is a distinct souring of sentiment in the narrative across India's 24-hour news channels. A news anchor opens her piece with a sarcastic diatribe on how, if only Trump were president of the USA in the past, so much could have been avoided through history; the First World War, the Second World War, all of it. The screen behind her displays an image of the US president with the text 'Earth is spinning better, thank Trump!'. The title of this video op-ed piece is 'Why Trump Should Never Win the Nobel Peace Prize'.
It is a marked departure from the rapturous reception a second Trump term got only nine months back. A statement released then by India's External Affairs Ministry described how the two leaders had reaffirmed their commitment to a mutually beneficial and trusted partnership and agreed to remain in touch and meet soon. Social media and news coverage were awash with praise both for this sweeping victory and the warm and cordial relations between Mr Trump and Mr Modi.
President Trump's decision and threat to now impose a 50 per cent tariff by the end of August because of India's purchase of Russian oil has escalated a stand-off over trade and led to a spiral of news flow; the US will regret treating India this way, warns one piece; US-India relations are at their worst, bemoans another. The social media clarion has sounded—it is time to ditch American products and companies like McDonald's, Coca-Cola, Amazon; although how exactly that will be done remains unclear. All this unfolding while a fresh deadline to this hefty tariff clocks down. So much has changed in nine months.
India has for now been steely in its response; but both choices present hard outcomes.
Global commodity data shows India imported about 1.8 million barrels per day of Russian crude in the first half of the year, which is about 37 per cent of its total imports. Since 2023, India has been the biggest market for Russian crude, and between the two largest buyers of Russian crude, India and China, it is India that is clearly more dependent. According to data and analytics company Kpler, India imported 89 million tonnes (seaborne crude) last year, which was more than China's import. Switching crude oil varieties and buyers is neither going to be easy nor practical for India's refineries, aside from the fact that it also threatens to ratchet up prices.
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On the flip side, the collateral damage of a 50 per cent tariff slap will be large. There are a number of export-oriented industries that are already feeling jittery; textiles, for one, the gems and jewellery sector, another, where the US makes up 30 per cent of its exports. Many export-oriented industries are in fact also labour-intensive industries, and a hit to their fortunes will have a massive knock-on effect on jobs. The list of vulnerable companies includes the big gun, Reliance Industries, which signed a 10-year contract to buy nearly 5,00,000 barrels a day of crude from Russia's state-owned Rosneft, making it the biggest-ever energy agreement between the two nations. Reliance has been exporting its refined products to both Europe and North America. A breakdown in ties with Western countries will mean significant changes in its business and perhaps its profitability in the months to come.
India's domestic advantage with a large consumer market has been pointed to, but whichever way you cut it, a tariff hike of this quantum will see economic damage and dented investor sentiment for the country.
There are counter-arguments to the possibility of a grim reset in Indo-US ties. One, that this will be yet another flip-flop by the US President, where a resolution of some sort will be cobbled together before the end of August, which is the deadline set by him. Two, that the two countries are now intertwined across too human and financial capital strands; Indian tech firms have long been present in America's industry through its services and its engineers. Money now flows both ways through venture capital and significant equity market exposure. Ripping all that apart will take more than tariff sabre-rattling.
All or some of this may prove to be true. But there are also two clear questions here that need to be reckoned with.
India was used to being the 'pick me' candidate when it came to China, where there was tactical and strategic advantage in building strong relations with India to offset China's growing strength in the region. Many nations, the US included, are having a rethink about that approach. China is no longer taboo, and India is no longer the counterfoil to China's regional dominance. Worse yet is the distinct turn in relations between the US and India's other neighbour, Pakistan. What started with a rather embarrassing display of cornering credit, President Trump claimed he was the one to put a stop to an imminent war between India and Pakistan—a claim that has been consistently repeated while speaking on the subject. While Indian diplomatic channels frantically tried to belie that take, Pakistan not only concurred with the US President's statement, it went on to nominate Donald Trump for the Nobel Peace Prize. Relations between the US and Pakistan have been on the upswing since then, ranging from private lunches with Pakistan's top military brass and talks about potentially boosting trade and commercial ties. It has left the Indian government with egg on its face and a disgruntled domestic mood. India and Pakistan, to America's mind are now firmly re-hyphenated.
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How did it all turn sour so quickly when the singular narrative so far has been Prime Minister Modi's outstanding personal equation with Trump—from walking out hand in hand to address a rally in Houston, Texas a few years ago, to what is now being termed the lowest point in Indo-US ties in many decades; the 'great friendship' has not yielded any joy on economic ties. Perhaps the first lesson then is when policies—foreign, national, or economic—are built around personalities rather than nations, egos tend to get in the way. Especially when there is a domestic fan base that has been cheering the 'strongman' approach to cater to.
There is also a view that this could be the moment India dives into structural reforms. In other words, this will be the catalyst for the great reset. As we wait on that outcome to emerge, it gives rise to the second question: Was that not the plan with the 'Make in India' campaign launched a decade ago? What has gone so sorely wrong ten years into its launch, where is the performance audit on the promised nation-building initiatives, the manufacturing thrust, more jobs for more people?
This present round of tariff threats and ultimatums could go in any direction. Frankly, it does not even matter. The economic ground is shifting beneath the feet of both leaders. Time to see who has feet of clay.
Mitali Mukherjee is the Director of the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.