Trump tariffs call for long-term plan

Exercising the authority vested in him under emergency economic powers and the International Emergency Economic Powers Act (IEEPA), US President Donald Trump has imposed punitive tariffs on the country's trading partners, including India. This is in continuation of the reciprocal tariffs order issued in April to regulate imports and rectify trade practices that contribute to large and persistent trade deficits.

The first major problem with Trump tariffs is that it is difficult to evaluate or critique them using traditional international trade criteria and parameters. One thing is clear – the US president wants to change the international trade landscape and alter the global economy to suit the US interests. But will Trump tariffs be able to achieve it is a moot question, and that too without inflicting pain on Americans. In the past, Western democracies would have elaborate mechanisms for decision-making with regard to sweeping changes and “bold and disruptive” decisions, wherein domain experts would have thought through it and the political leaders would weigh in on the pros and cons from geopolitical and strategic perspectives. The US president’s unique personality and unconventional style of functioning are making it difficult for nations to figure it out and negotiate a seemingly win-win deal – one that offers some face-saving compromises and, most importantly for a sovereign nation, not to be seen as succumbing to the US pressure, even if it is.

Like many other countries, it is evident that India does not want to antagonise the US, which can at best be construed as being pragmatic. But taking such a position has other consequences. PM Modi's claims of special friendship with Trump are now being derided by many, and even his diehard supporters are unable to defend or explain it convincingly. Secondly, in the last few years, New Delhi has been making loud and somewhat bombastic claims, mostly to impress and influence Indian voters. For instance, India is emerging as a “vishwaguru”, a superpower in the making, with an independent foreign policy and a major power to be reckoned with in international politics. Now, the argument that Trump has called India’s bluff is growing louder and beginning to sound more credible than ever before.

The Indian government did not want to be seen as a deer caught in headlights. So, contrary to its usual style, this time, suo motu, it informed the parliament that it was assessing the impact and would take necessary steps to protect national interest. Clearly, India does not want to jeopardise the US trade negotiations, which got stuck as it had difficulties, among other things, in accepting the superpower’s demands regarding the opening up of agricultural and dairy markets and reduction of non-tariff barriers. In hindsight, it appears that New Delhi was overconfident in its ability to pull off a deal and underestimated Trump and his regime’s hardball negotiation tactics.

India has limited options in the short run and will have to plan for a long-term strategy to deal with not just the international trade issues, but also the connected geopolitical issues such as the buying of oil from Russia and Iran, role in BRICS and New Delhi being forced to dispute Trump’s claims about mediation in India-Pakistan relationships, which is being construed as not playing the ball. The industry is hoping that the ensuing pain will be temporary, while the Indian government is pinning its hopes on sealing the bilateral trade deal.