Since his return to power, US President Donald Trump has issued a series of tariff threats to India. His manner is relentless, and India’s discomfort noticeably large, though the Modi government has launched no explicit critique yet. Prime Minister Narendra Modi had celebrated Trump’s return to power, fondly remembering their bonhomie during his first term and hoping it would yield benefits. Instead, the India-US relationship has entered an uncertain phase.
What is the logic underlying Trump’s tariff threats? What are India’s options? Can New Delhi hit back?
The standard rationale for tariffs is economic. Tariffs have often been used by countries to protect their domestic industry. It is behind tariff walls that industrialisation took off in the United States in the second half of the 19th century. To illustrate this, let us take the example of steel.
In 1860, most of America’s steel came from Britain. By the first decade of the 1900s, US Steel alone, headquartered in Pittsburgh and protected by a tariff, was not only producing enough for the home market but had also started exporting to Europe. In Japan and South Korea, both big producers of steel today, the steel industry rose in a roughly similar manner.
Tariffs fell out of fashion in the most recent era of globalisation, beginning in the 1980s. Economic policymakers came to believe that by stifling competition, tariffs created inefficiencies and restricted economic growth. Think of India. Protected by tariff walls, the steel produced in India in the era of central planning was substandard. India’s steel industry finally took off with the lowering of tariff walls after the early 1990s.
So, it is not that tariffs have never been used to promote industrialisation (or hinder it in effect). The surprise in Trump’s tariff argument is two-fold.
Political purpose of tariffs
First, it is mostly developing countries that have relied on tariffs to promote industry, as South Korea successfully did in the 1960s and 1970s, and so did post-1865 America, when the US was arguably still a developing economy. Economically developed countries have not generally used tariffs to speed up industrialisation. At best, they have used industry-specific subsidies, not a comprehensive construction of tariff walls.
Second, the world had forgotten how to use tariffs for political purposes. In modern history, the most dramatic clash over tariffs led to the two Opium Wars in China during the 1840s and 1850s, when the East India Company sought to open Chinese markets to opium exports from colonial India, and the Chinese emperor resisted the move. To be clear, Trump is not making war threats based on tariffs, but he has used them punitively—raising tariffs on Brazil to attack the Lula government and its courts for prosecuting his ally, former President Jair Bolsonaro. He has also issued tariff threats to Russia, but that is a penalty for not ending its war against Ukraine.
This raises the all-important question. Can tariffs be more generally used for political purposes?
In a political science classic published nearly half a century back, Power and Interdependence: World Politics in Transition, Robert Keohane and (the recently deceased) Joseph Nye made a famous argument that is highly pertinent today. Their argument also has special relevance to India.
Keohane and Nye agreed that tariffs, by restricting competition, caused economic inefficiencies. But they said that the world of politics and power often worked differently, not by the logic of economic efficiency.
Though normatively disagreeing with Trump, Keohane and Nye have empirically analysed his tariffs in a recent article (“The End of the Long American Century”, Foreign Affairs, July-August 2025). “The paradox of trade power,” they say, “is that success in a trading relationship … is a source of vulnerability,” adding that, “running a trade deficit can strengthen a country’s bargaining position. The deficit country, after all, can impose tariffs on the surplus country.”
For the applicability of this argument, consider the current trade relationships of the US. Take India first. In 2024, the India-US goods trade was valued at $129.2 billion. India’s exports to the US were worth $87.4 billion, and the imports from the US were worth $41.8 billion. Thus, vis-à-vis India, the US had a goods trade deficit of $45.7 billion.
India, however, is not even among the ten largest trading partners of the US. The four largest are Canada, Mexico, China, and the European Union. All have had to face Trump’s tariff ire. And, with the exception of China, all have had to make a compromise, or are well on the road to one. These trade surplus economies (vis-à-vis America) depend on the US market much more than the US does on their markets.
Can India follow China and push back against the US? Despite its surplus vis-à-vis the US, China can partially deviate from trade vulnerability because it has, as of now, virtually irreplaceable control over precious minerals, called “rare earths” today. Newer technologies in the industrial sector critically depend on rare earths. There is nothing irreplaceable in India’s export bundle. Thus, India’s trade surplus creates vulnerability.
Second, in terms of balance of power, the management of India’s adversarial relationship with China requires US support. In the past, the Soviet Union helped India manage its security environment. Today, Russia is weaker than the Soviet Union was in the 1970s. Besides, to counter the West, including the US, Russia is also seeking an alliance with China.
If India had economically and militarily grown as rapidly as China over the last three and a half decades, there would have been no need to seek the support of the US. India could have stood on its own feet. But to counter China now and manage its larger security environment, India needs powerful allies like the US.
Also read: India sees the value of US defence ties, but MAGA-style tariffs threaten long-term stability
Imbalance of power
Power politics drives Trump’s foreign and economic policy. Interests, not the larger principles of democracy, now shape America’s bilateral relationships. Both adversaries and the so-called allies – think of Western Europe, Japan, and South Korea—are subject to the same master narrative of power politics.
Unless the courts force him to drop the Presidential construction of tariff policy, leaving it to the US Congress, or the MAGA consumers are hurt by his tariffs, forcing him to change, India will have to develop a response from a position of imbalance or relative weakness.
That is not the way international relations should be. But that is how they often are. Trump is only the most recent example of power politics in international relations.
Ashutosh Varshney is Sol Goldman Professor of International Studies and the Social Sciences and Professor of Political Science at Brown University. He tweets @ProfVarshney. Views are personal.
(Edited by Ratan Priya)