What could Indian trade negotiators and Piyush Goyal do to anticipate Donald Trump’s present economic approach? With daily escalations and pauses, it may appear erratic. But beyond the daily headline havoc, there is a carefully constructed worldview.
Anticipating Trump’s approach is fairly simple: study the policies advocated by his trusted economic advisers over the last few years. This means reading the works of treasury secretary Scott Bessent, special trade and manufacturing counselor Peter Navarro, conservative economist Oren Cass, and most importantly, Stephen Miran, Trump’s chair of the Council of Economic Advisers. The latter’s report from October 2024, ‘A User’s Guide to Restructuring the Global Trading Order’, is stunning for various reasons.
The report explains Trump’s present approach and his underlying intent. It also helps explain (unintentionally) why this approach is unlikely to work and could instead lead to chaos. In other words, the 41-page document represents the most perfect approximation of a ‘method’ behind the ‘madness’. So, let’s briefly touch upon it to understand India’s negotiating dilemmas.
The Miran plan
The objective of the tariffs, as explained by the report, is to collect ‘taxes’ or ‘revenues’ from American importers—to make imports prohibitively costly and thus incentivise domestic manufacturing investments. Less importantly, the objective is to serve as a flexible form of leverage to push countries toward re-adjusting their economic policies in favour of US exports. This is seen as the first phase.
In the second phase, the US is set to leverage both its relationships with dependent allies as well as tariffs in order to draw a new ‘Plaza Accord’ with key countries. Coordinated currency adjustment decisions in the accord will help Washington devalue the dollar—without compromising its reserve currency status—in order to further advantage US exports.
Before one comments on the virtues and feasibility of the plan, it is worth noting that the document appears to be tailor-made for Trump 2.0. It assures the then-potential president that he will be able to regenerate an economic boom similar to the one during his first term. This is to be done by extending the tax cuts of 2017-18 (set to lapse in 2026) through the revenue generated from tariffs.
“Tariffs are a big part of the answer for extending the tax cuts; revenue must come from somewhere,” the report reads.
The promise of creating millions of manufacturing jobs through a stroke of the pen is also extremely seductive to Trump. Such a return to manufacturing will, after all, reverse the ‘China shock’, restore ‘blighted’ communities, and rejuvenate America’s military-industrial preparedness. In case the president were to entertain concerns about the plan, the report goes to great lengths to reassure him that he could have the cake and eat it too. Such reassurances, however, are based on extremely thin evidence and questionable inferences. As the author politely confesses: “It is worth repeating that many of these policies are untried at scale, or haven’t been used in almost half a century.”
It has been promised in the report that the US could impose global tariffs and still not risk ‘higher prices’ or ‘inflation’. This is because other currencies are likely to depreciate in order to adjust to the taxes and continue exports. The logic is mainly based on observations from the previous trade war against China during 2018-19. However, if imports are expected to merely continue (with the bonus of higher revenues), then why would domestic manufacturing be incentivised? This is left unaddressed.
Similarly, the plan appears to greatly overestimate the US’s ability to weaponise its mass consumption power to demand sweeping adjustments from allies, partners, and perhaps adversaries. Finally, the document notes that retaliatory tariffs would negate the calculations undergirding the plan, given that it would hurt the US economy and disrupt global trade. However, Miran discounts such a possibility based on China’s fear of ‘capital flights’. Beijing’s recent retaliatory measures challenge the above analysis to a strong degree, if not conclusively yet. Meanwhile, US allies such as the EU are also preparing their own set of retaliatory measures—partly in order to regain leverage for negotiations.
Contrary to expectations, the dollar has marginally depreciated instead of strengthening in response to the tariffs. This defies 100 years of economic theory, given that the tariff–imposing country’s currency almost always appreciates. This unique outcome is being explained in terms of investors anticipating a US recession and expecting the country to suffer more from the tariffs than other major economies.
These are extremely concerning and unexpected undevelopments, driving the administration’s surprise decision on 9 April to implement a 90-day pause on reciprocal tariffs (barring China).
In sum, the Miran plan is the ‘method’ behind the madness, albeit one that is very unlikely to work while causing enormous economic dislocation. As importantly, the emerging economic pain in the US and the world is not simply a short-term by-product of a necessary adjustment. It is the logical aftereffect of faulty economic reasoning and is set to deepen.
What is also striking about the plan is its tendency to scan through extremely complex strategic relations from a solely economistic point of view. Alliances carefully cultivated over decades based on trust-building are seen as crude bargaining leverages, and the strategic consequences of mistrust and disruption (read wars and conflicts) are accounted for only in economic terms. One can only hope that Trump is not being guided in his strategic thinking based on such economic calculations.
A fuller evaluation of the plan is not intended in this piece. For that, the reader is encouraged to review the report as well as the views of Trump’s close advisors. The more important task now is to assess what such a plan and its objectives mean for India’s approach.
Also read: Can India satisfy Trump with tariff reduction? Vietnam has already tried and failed
Uncertainty & contestation
Contrary to the blaring rhetoric, the administration is not solely driven by the problem of ‘trade deficits’ and has much larger goals. Conservative economists aligned with Trump also suggest, with some plausibility, that the baseline tariff of 10 per cent is likely to remain and get institutionalised while the additional country-specific tariffs will be used as ‘leverage’. Leverage for what? The list does not appear to be finite or very clear yet.
Given the Trump administration’s attachment to both revenues as well as manufacturing growth, the temptation to not easily abandon country-specific tariffs will be meaningful—despite the recent pause. Given the relatively limited exports from India to the US, the prospect of earning revenues from Indian exports will not be very alluring. However, the prospect of achieving much greater access to Indian markets—from agriculture to automobiles—as well as greater Indian purchases of energy and defence equipment (through the tariff threat) will be significantly more attractive.
The US gains most from concessions in the non-tariff sector, and India’s export losses may be less than proportionate to such gains. Many other countries would be moving toward such a conclusion and reset their negotiating strategies. This is especially so after Peter Navarro’s recent statement: “Let’s take Vietnam. When they come to us and say ‘We’ll go to zero tariffs’, that means nothing to us because it’s the nontariff cheating that matters.”
The predominant view—backed by economists, investors, and bankers—now appears to be that Trump’s policies are causing inflationary pressures and have significantly increased the possibility of a recession. The eruption of widespread protests as well as grumblings from Republican politicians as well as Wall Street indicate that Trump faces worsening economic and political challenges in the coming days and months. Such mounting difficulties are likely to further weaken the US’ bargaining hand vis-à-vis everyone else. Furthermore, political and economic stress would also reinforce divisions within the Trump administration, leading to further policy uncertainty and contestation.
In other words, India’s approach of seeking an urgent and early settlement of trade disputes may be unwise.
Also read: Trump’s reckless policies won’t be the end of the American era or its global leadership
How should India calibrate?
India’s approach of exploring a separate deal with a potentially still–amenable Trump administration is the right one. However, the approach needs to be modified in terms of expectations of success in light of Trump’s real objectives and dwindling political capital at home. It could also be complemented by firmer positioning aimed at minimising costly concessions and in the right spirit of transactionalism.
It is possible that the US trade approach toward India has relatively little to do with Indian policies and more to do with grand experiments being tried out in Washington by President Trump and his group of economic advisors. They have embarked on a radical plan to reorient both domestic as well as global economic order, aiming at reversing the trends of the last three decades. This will not be successful. The pause indicates that self-doubt may have already crept in. What India seeks to gain through urgent parleys and offers, it can achieve by simply waiting. The more New Delhi believes and acts on this, the greater its ability to regain leverage vis-à-vis the US.
This article is part of a series on Trump’s tariffs.
Sidharth Raimedhi is a Fellow at the Council for Strategic and Defense Research (CSDR), a New Delhi-based think tank. He tweets @SRaimedhi. Views are personal.
(Edited by Prasanna Bachchhav)