Trump's Tariffs on India Imperil India-US Strategic Relationship

The Diplomat

3 days ago

In addition to a 25 percent tariff on Indian exports, Trump has announced an 'unspecified penalty' on India for buying Russian oil and arms.
President Donald Trump has announced a 25 percent tariff on all Indian exports to the United States, starting August 7. He also announced an 'unspecified penalty' on India for buying oil and weapons from Russia.
The tariffs on India are higher than those Trump imposed on India's export peers in Asia, which will likely make Indian goods less competitive in the U.S. market. American importers will choose suppliers in Vietnam or Indonesia, whose goods will come under lower tariffs.
Indian goods worth some $87 billion could be affected if the Trump administration implements the new tariffs. It would shave off 0.5 percent from India's GDP growth, according to some estimates.
'They have one of the highest tariffs in the world now, they're willing to cut it very substantially,' Trump told reporters after his social media post on July 30. 'We're talking to India now – we'll see what happens … You'll know by the end of this week,' he added, seemingly keeping a door open for more talks. A U.S. delegation is to arrive in India for more discussions but that will be well past the August 1 deadline set by Trump for countries to seal bilateral deals with Washington.
India's reaction was measured. Its Commerce and Industry Ministry said the government had taken 'note' of Trump's remarks and was examining its implications. Both countries were engaged in talks for arriving at a 'fair, balanced and mutually beneficial' bilateral pact, and India remained 'committed' to that goal, it said. The ministry's statement placed India's red lines front and center – i.e., national interest would take precedence during talks with the U.S., as it had for pacts like the Comprehensive Economic and Trade Agreement concluded between India and the U.K. on July 23-24.
In his weekly media briefing today, Indian External Affairs Ministry spokesman Randhir Jaiswal said ties between the two countries had 'weathered several transitions and challenges.' The focus, he said, was on the substantive agenda that India and the U.S. have committed to.
Trump's announcement of punitive tariffs on India came after he announced trade deals with the Philippines, Japan, Indonesia, the European Union (EU), and South Korea. Pakistan also secured a trade deal that saw its tariff rate lowered to 19 percent.
U.S. talks with India's strategic rival, China, are said to be at an advanced stage. Beijing is expected to get off easier as it controls the rare earth elements supply chain that the U.S. industry cannot do without.
In his 'Liberation Day' announcement on April 2, Trump had slapped India with 26 percent tariffs. Two Indian officials, whom The Diplomat spoke to separately, said that taking a cue from U.S. deals with Japan, Indonesia, and others, New Delhi had been expecting Washington to impose a 15-17 percent tariff rate on India.
India is also upset with the 'unspecified penalty' Trump has imposed on it for its purchase of oil and weapons from Russia. After all, New Delhi has not made any big-ticket arms purchases from Russia since the $5.5 billion S400 Triumf missile system deal in 2018.
As a result of its strong ties with the former Soviet Union during the Cold War, a large part of India's defense hardware continues to be of Soviet/Russian origin. However, Moscow's share in Indian defense purchases has fallen over the years. According to the Stockholm International Peace Research Institute, India's arms imports from Russia fell from 72 percent of its total defense purchases in 2010-14 to 55 percent in 2015-19 and 36 percent in 2024. India has been diversifying its defense acquisitions, and France, Israel, and the United States have emerged among its top procurement sources. Additionally, India is also stressing self-reliance in defense procurement. It hopes to purchase more military hardware manufactured by local companies.
It does seem that India's refusal to condemn Russia's war in Ukraine, its purchase of discounted Russian oil, and participation in BRICS meetings underlie Trump's imposition of an 'unspecified penalty' on India.
Trump's harsh treatment of India has taken New Delhi by surprise. In February, Indian Prime Minister Narendra Modi and Trump had what seemed to be a successful White House meeting, when the start of talks for a trade pact was announced. Both Modi and Trump had then agreed to boost bilateral trade, which is currently worth $129 billion, to $500 billion by 2030. 'Recognizing that this level of ambition would require new, fair-trade terms, the leaders announced plans to negotiate the first tranche of a mutually beneficial, multi-sector Bilateral Trade Agreement (BTA) by fall of 2025,' a joint statement issued after the Modi-Trump talks said.
However, things did not unfold as India expected.
Several rounds of talks have followed since then in New Delhi and Washington. But these have not narrowed the differences between the two sides. U.S. demands that India open up its sensitive farm and dairy sectors to U.S. imports, and its seeking of relaxed laws on data storage and digital trade, remain sticking points.
Ironically, India was among the few countries that was not worried about Trump's second stint in the White House. It had worked well with the first Trump administration, and New Delhi expected Trump 2.0 to be easy to handle. However, Trump's focus on trade, righting deficits, and abandoning friend-shoring for onshoring has put India in a difficult spot.
Trump's tariffs will have implications that go beyond trade. It is likely to have a dampening effect on the India-U.S. strategic relationship, which has been carefully nurtured over the past 25 years by the leadership of both countries across administrations, including Trump himself during his first term in office (2017-2021).
In recent decades, India and the U.S. have described themselves as 'engaged democracies' rather than 'estranged democracies' as they were known during the Cold War years, when they were on opposite sides.
India-U.S. ties have been warming since the year 2000. The high-water mark came when they signed the 2008 India-U.S. civil nuclear deal that helped integrate Asia's third-largest economy into the global nuclear commerce. With the enhancement of strategic trust, India has also been buying defense hardware from the United States. Since 2008, defense procurement from India has shot up to over $20 billion. U.S. Navy ships now make regular calls at Indian ports, and both sides engage in joint military exercises in India and the U.S.
India has been looking to emerge as a pole in a multipolar world with help from strategic partners like the U.S. to achieve its ambition of becoming a developed economy by 2047. Trump's intemperate remarks against the India-Russia partnership, his outreach to Pakistan, which he berated in his first term for its support for terrorism, and his overtures to China, besides pressuring India with high tariffs, have cast a shadow over the India-U.S. strategic partnership.
Trump is said to have sought a telephone call with Modi. But it is unclear what the Indian prime minister can offer Trump at this stage to get him to reduce the tariff rate.
India had been counting on measures like increased purchases of fuel and military hardware from the U.S., besides making changes in its civil nuclear liability law to remove provisions that penalize suppliers of equipment than operators of plants, to woo Trump. Amendments to India's civil nuclear pact would open the doors for U.S. companies to set up plants in energy-starved India, which currently imports more than 80 percent of its fuel requirements. India does not have the resources to promise reciprocal investments, the central offering made by the EU, Japan, and South Korea in their trade deals with the United States.
In the short term, India will have to focus on minimizing the consequences of Trump's punitive tariffs, particularly the ones relating to Russian oil. That is because any disruption in supplies will have a major impact on the Indian economy.
In the medium term, a Trump visit to India, planned for September-October, may be deferred if there is no trade deal. This could place a question mark over the future of the Quad and the Indo-Pacific.
And in the long run, India may have to examine the consequences of an increasingly unreliable United States. There is talk of a revival of the Russia-India-China or RIC trilateral. Russia has been keen to revive the grouping, while India has seemed noncommittal without an explicit no. Any move to revive the group is likely to anger Trump who sees groupings like RIC and BRICS as anti-U.S.
In times of global uncertainty, middle and smaller powers do hedge their bets. In India's case though, China is not a partner it can rely on, given its largely acrimonious relationship with Beijing. Given Russia's current heavy dependence on China, Moscow too may not be the partner to India that it once was.
That leaves India with not too many options except for making the best of an existing bad situation — a daunting challenge indeed for Indian diplomacy.