India's hand in Trump tariff row stronger than it looks

AllAfrica

2 days ago

On August 6, US President Donald Trump signed an executive order doubling tariffs on most Indian exports to the United States, raising the rate from 25 to 50%. The decision, set to take effect later this month, was justified on grounds of trade imbalances and New Delhi's continued discounted purchases of sanctioned Russian oil.
The escalation marks the sharpest deterioration in US-India trade relations in decades. Prime Minister Narendra Modi has denounced the measures as 'unfair and unjustified,' noting that other major buyers of Russian crude have not been penalized.
'We will protect our farmers and our domestic interests, even if we must pay a heavy price,' he told a rally in Gujarat in response to the tariffs.
Within days, India announced a pause on planned US defense acquisitions — a not-so-subtle signal that its strategic options extend far beyond the Pentagon's procurement lists. Senior officials have begun mapping out a menu of counter-moves, from limited retaliatory tariffs to deeper integration with BRICS partners and other non-Western economies.
To understand why India is in no rush to fold, it is worth taking stock of how the balance of power has shifted. First, BRICS itself has shaped into a US$32.5 trillion economic coalition after the addition of Egypt, Ethiopia, Iran, Saudi Arabia, the UAE and Indonesia.
The enlarged group now represents roughly 30–40% of global GDP and accounts for over a fifth of world trade. This is not yet a substitute for the G7 ($46.8 trillion), but it is a credible alternative pole.
Second, while the US dollar remains dominant, accounting for around 58% of global reserves and cross-border transactions, its share has been steadily declining, from 72% in 2000.
India's trade with Russia, which surged to around $65–69 billion last fiscal year, is increasingly settled in rupees and rubles, bypassing the dollar entirely. Similar currency-swap arrangements with the UAE and other partners are quietly expanding.
Third, India's role in critical global supply chains gives it built-in leverage. The country produces about 60 percent of the world's generic medicines and exported $28 billion worth of pharmaceuticals in 2023–24.
Its IT and ICT services exports, worth roughly $150 billion annually, are heavily embedded in US corporate operations, from Silicon Valley's software pipelines to Wall Street's back-office systems. Tariffs on Indian goods thus risk boomeranging onto American companies and consumers.
Modi's real advantage lies in what analysts such as Nishant Rajeev call 'multi-alignment' or 'optionality,' the skill of pivoting among multiple partners and platforms without locking into any single one.
India's External Affairs Minister S Jaishankar framed this strategic agility in Foreign Policy as the freedom to choose partners based on interests rather than on emotion or prejudice.
India's $3.4 trillion economy and 1.4 billion market give it scale; its BRICS membership, combined with Quad, the Shanghai Cooperation Organization (SCO), and G20 roles, gives it reach. This unique positioning allows New Delhi to keep one foot in the Western security architecture while cultivating deep ties to Russia, Iran, the Gulf, and Central Asia.
Optionality has a financial dimension too: the more India settles trade in local currencies, the less exposed it is to US financial leverage. That, in turn, blunts the coercive edge of both sanctions and tariffs.
Washington's wager appears to be that punitive tariffs will force India into strategic compliance. History suggests otherwise. Sustained tariff wars often prompt global supply chains to reroute, and the early signs here point to a similar outcome.
Rather than isolating India, higher tariffs may accelerate the very multipolarity the US seeks to contain. Trade diversion toward BRICS partners, the Gulf and ASEAN could deepen alternative payment systems and standards.
Politically, the optics of coercion from Washington may play into Modi's domestic narrative of sovereign resilience, especially in the run-up to state elections.
There are domestic costs for the US as well. More expensive Indian pharmaceuticals could raise healthcare costs, while disruption in IT services risks operational headaches for US firms.
In a tight labor market for STEM talent, alienating a country that produces over half a million new engineering graduates each year is a questionable move.
Seen through this lens, Trump's tariff escalation risks becoming a strategic own goal. It undermines the bipartisan effort of the past two decades to position India as a counterbalance to China.
It also introduces uncertainty into defense cooperation, just as Washington is seeking to strengthen maritime deterrence in the Indo-Pacific via essentially the Quad.
More fundamentally, it sends a message that US economic statecraft is increasingly zero-sum, a framing that will nudge other swing states toward hedging strategies. In that world, India will not stand alone: it will be joined by BRICS and several mid-sized powers seeking insulation from great-power coercion.
If Trump's goal is actually to keep India close, a more sophisticated approach would blend incentives with calibrated pressure.
That could mean reviving stalled trade talks, offering targeted supply-chain co-investment in sectors like semiconductors and AI and easing market-access irritants in agriculture and services.
Such engagement would not preclude firm conversations about Russia, but it would avoid the trap of punitive measures that push India further into BRICS and alternative coalitions.
Modi's India will not back down from a challenge; it will build around it. The more the West applies pressure, the more New Delhi is likely to deepen its ties with BRICS and other non-Western coalitions that offer strategic autonomy in a multipolar world.
Ricardo Martins holds a PhD in sociology with a specialization in geopolitics and international relations and an advanced studies certificate in international trade. He is based in the Netherlands.