Donald Trump has just promised to “substantially raise” tariffs on India for buying Russian oil. Even if we ignore Europe’s massive energy purchases from Russia, the US President’s latest move is hardly a magical spell that will force Moscow to declare a ceasefire in Ukraine. It’s simply the latest addition to a dizzying series of 50+ tariff announcements, reversals, extensions, and double-reversals that have left the world disoriented. One might wonder if a major investor in blood pressure medication is behind it all, trying to drive up their stock price.
So why is America reversing 80 years of commitment to free trade?
With some justification, the US may believe it has been taken advantage of. Europe and Japan outsourced defence spending to Washington. China cleverly misused WTO rules to become the world’s factory. And illegal immigration has imposed a massive burden on the American state.
Trump, aspiring to be the messiah who would correct these “injustices”, is increasingly frustrated by his lack of success. DOGE turned out to be a shambolic experiment that hollowed out critical government departments, with little to show in return. Instead of a parade of beneficial trade agreements, negotiations with China have turned into a circular, slow-walk to nowhere. The UK has signed a vague “framework.” The EU is facing internal rebellion over its own agreement with the US.
Meanwhile, his peace initiatives in Gaza and Ukraine appear frozen. Trump needs wins—and imposing unilateral tariffs is now his shortcut to achieve them. There’s also an undercurrent of discomfort with the rise of Modi-led India — its economic growth and growing global influence.
The Modi government has taken a “win-win” approach to trade negotiations. Agreements like the UK FTA are seen as complementing the government’s initiatives to make Indian products and services globally competitive, and gain a larger share in global supply chains. New Delhi has eschewed tit-for-tat tariffs and avoided negotiating by soundbite. While prioritising outcomes, India’s negotiators have ensured that strategic sovereignty is protected, and critical sectors like dairy and agriculture are ring-fenced from capital-fuelled takeovers.
What we are facing, however, is not merely moving goalposts, but changing grounds. The latest US move involves commingling market access with anti-BRICS agenda and a dash of Russia-related pressure tactics. If implemented, these threatened tariffs could hurt important sectors of Indian economy — IT, pharma, automotive parts, and more.
We need a clear-eyed, effective strategy to cope.
Also read: India’s export basket has no irreplaceables. It’s a vulnerability in Trump’s power politics
Enter 3T – Tact, TACO and Time
Tact: Trump keeps needling India using Pakistan. But we are now in an entirely different economic and military orbit. We must avoid reacting to every overture between Pakistan and the US. If Pakistan has oil, God bless them. Let the US help develop it and give Pakistan a raison d’être beyond hating India. If Pakistan is offering some cryptocurrency business to the US, so be it. How much can a bankrupt country’s crypto economy even be worth?
The Indian government has rightly stressed that the tariff situation is a work-in-process, with the next round of negotiations scheduled for late August. There has also been a focus on the multi-dimensional nature of the India-US relationship and the “strategic partnership” reiterated by every US president in recent memory. This calm approach to a volatile counterparty must continue. Potentially, India can also explore non-trade sops — cooperation in international security or climate action — in exchange for tariff relief.
Most certainly, our negotiators must have reminded their counterparts that India has alternative suppliers in sectors like defence, aviation, machinery, and education — each of which employs thousands of Americans.
TACO: Turn-Arounds Can Occur. And they just might. The halo of success surrounding tariffs is rapidly disappearing in the US. Supply chain bottlenecks are slowing down manufacturing. As pre-tariff inventories run out, consumer inflation is going upward. The poorest Americans will suffer the most — potentially electoral hara-kiri. Reciprocal tariffs, even from close allies like Japan and the EU, will hurt US exports. The promised flood of returning manufacturing jobs may end up a trickle, and, in any case, there are few takers for the low-wage work currently done in the emerging economies.
Ironically, as Fareed Zakaria pointed out, 86 per cent of US non-farm jobs are in services, a sector where America enjoyed a $300 billion surplus in 2024. That advantage is now at risk. High-end R&D could shift to Europe, China, or India. Meanwhile, the unpredictability of US trade policy is spurring countries to seek alternatives to the dollar as a global reserve currency.
Instead of MAGA — “Making America Great Again” — the end of American exceptionalism is becoming a real possibility. And stakeholders who matter – capital markets and the MAGA base — are starting to notice. They may eventually vote with their feet, leaving Trump with no choice but to reverse course. That’s the TACO.
Time: The negotiation window and the lag before tariffs take effect offer India a chance to mitigate impact. We should fast-track FTAs with the EU and key African countries, and perhaps even explore a limited trade arrangement with China in an urgent mission mode. This could diversify markets and reduce dependence on the US.
As Prime Minister Modi recently hinted, this tariff challenge can be used to trigger reforms that make our economy stronger. This includes enhancing private sector participation, exploring further divestments, moving towards self-certification-based regulation, and replacing the “deemed disapproval” approach with “deemed approval” in regulatory clearances.
At the same time, our competition protection regime must become more dynamic and effective. Instead of sheltering domestic regulatory arbitrageurs behind tariff walls, we must use this time to build globally competitive businesses capable of thriving in open markets.
India has adopted a level-headed approach to Trump’s tariff rollercoaster — focusing on reaching an agreement over engaging in shenanigans. The strength of our domestic economy and our clarity on red lines provide grounds for optimism. And if our resolve is indeed tested by arbitrary tariffs, we can draw inspiration from history
Over 2,300 years ago, Alexander the Great had to turn back from India. Just 78 years ago, a man derisively described as a “half-naked fakir” led a peaceful revolution that brought down the most powerful colonial power in history. India has faced hegemons before.
We know how to win.
The author is a former investment banker. Views are personal.
(Edited by Prashant)
Poor, socialist India does not have the leverage to call the shots with the USA. India will remain a weak state trying to protect farming and diary, for eternity.