Raghuram Rajan reacts to Donald Trump's 50% tariffs on India: ‘It's hard to negotiate with a gun to your head…'

Mint

2 days ago

Renowned economist Raghuram Rajan has called out United States President Donald Trump's 'pressure tactics' in imposing 50 per cent tariffs on India and Brazil, in an interview with Brazilian economic and financial publication, Valor.
Speaking on Donald Trump's apparent 'shift in mood' against India, Raghuram Rajan said that while trade with Russia could be 'reconsidered', its is 'hard to negotiate with a gun to your head', and that this seems like an 'exercise in power' from the US.
Donald Trump last week said the US would impose 50 per cent tariffs on India as 'punishment' for buying oil from Russia. He has in the past also criticised India and Brazil for being part of what he dubbed 'anti-American' BRICS bloc. Brazil has also been slapped with similar 50 per cent duties.
According to the professor of finance at the University of Chicago, former Reserve Bank of India (RBI) Governor, and a former International Monetary Fund (IMF), chief economist, the time for a joint global response to US tariffs has 'past'.
'It's hard to negotiate with a gun to your head. And that's basically what's happening right now. I hope sanity will prevail in US relations with India,' he said.
The public, threatening aspect has made negotiations difficult, according to Raghuram Rajan. 'Lowering tariffs can help our economy. But again, it's hard to negotiate with a gun to your head. I hope that tempers cool and talks resume, because a 50 per cent tariff is unsustainable—not just for India, but also for the US, which risks alienating a country it hopes will be a strategic partner. People remember these things for a long time, and turning them away is rarely smart geopolitics,' he cautioned.
Raghuram Rajan noted that India may have expected trade talks to extend till October-November, and so held firm on some areas while negotiating. 'But that's not how it's worked for countries that have already reached agreements. This isn't about a balanced trade deal; it's an exercise of power.'
He added that India could give in on trade with Russia, since current prices are not much different across markets. 'If Russian oil were cut off entirely, prices would rise, but India could handle that. The bigger issue is political: an overt public decision to stop buying from Russia would be seen domestically as bowing to US pressure, which plays badly in any democracy. If Washington had quietly asked India to phase out Russian oil, it might have been acceptable,' he added.
On the impact of the tariffs, Raghuram Rajan noted that $80 billion of Indian exports to the US would become 'unviable', and in return some $40 billion of US imports into India, including Apple products, could 'hurt America to some degree'.
On Donald Trump's opposition to BRICS, Raguram Rajan noted that as a group of emerging economies, the interests of BRICS nations has 'diverged over time'. He added, 'India is not anti-US, and neither is Brazil in its current government. Being pulled into a bloc seen as anti-American is problematic for both.'
'If tariffs stabilise, even at high levels, the world will adapt. It won't be as efficient as the low-tariff era, but supply chains will adjust over time. The bigger problem is volatility. If today it's 50 per cent tariffs on one set of countries and tomorrow another, uncertainty will keep disrupting trade and investment. Stability is essential, and that's what's in the shortest supply right now,' he added.
'It would have been useful to form a broad coalition early on, before individual countries struck their own deals with Washington. That would have increased bargaining power. But now, with Japan, the EU, and the UK satisfied with their arrangements, it's harder—especially if China is excluded, since both Beijing and Washington may prefer separate dealings,' according to Raghuram Rajan.
'It's good for Brazil and India to talk about boosting trade and investment, but a united global front is probably too late at this stage. Still, maintaining dialogue is important, because this may not be the last disruption—more could come if the U.S. administration targets other countries,' he added.