Ironically, it was Trump’s tariff tantrums that brought estranged neighbours, India and China, together, with Russia. With the developments, the ‘U.S.-India COMPACT (Catalyzing Opportunities for Military Partnership, Accelerated Commerce & Technology) for the 21st Century’ initiative, jointly announced by Trump and Modi early this year, teeters on the brink.

To isolate Russia and step up pressure on Putin to end the Ukraine war, Trump has resorted to imposing punitive tariffs on countries doing business with Moscow. And India has been at the receiving end. In August, India was slapped with 50% import tariffs: 25% to “correct” the bilateral trade “imbalance” and another 25% as a “penalty” for New Delhi’s oil imports from Russia.

However, his arm-twisting has not yielded much, at least in India’s case. So far, New Delhi has chosen not to retaliate against the unilateral tariffs or disengage with Russia — its major source of cheap crude oil. Instead, India has been rallying friends and attempting to build economic partnerships, the India-China-Russia bonhomie being one such example.

But India’s decision to put national interest above its largest trade partner has come at a cost. The high tariffs could hit 66% of India’s $86.5 billion worth of exports to the U.S., estimates Delhi-based think tank Global Trade Research Initiative. From August 27, over $60.2 billion of exports from the textile, gems and jewellery, and seafood sectors have been reeling under the 50% duty. These labour-intensive sectors are staring at a major crisis as several industrial hubs have started reporting job losses. A price disadvantage of 30–35% vis-à-vis competitors has made exports difficult, says S.C. Ralhan, president, Federation of Indian Export Organisations. According to chief economic advisor, V. Anantha Nageswaran, the tariffs can dent India’s GDP by 0.5-0.6% in the current fiscal.

Given the high stakes, India could have followed in the footsteps of Japan, Vietnam or the U.K. to enter into a quick trade deal with the U.S. to lower the tariffs. A mini Free Trade Agreement (FTA) and a pause on Russian oil imports would have made negotiations with Trump easier. India did try to sign a mini FTA. As a country that had initiated FTA talks with the U.S. even before Trump commenced his trade war, India hoped for a deal before the tariff reality struck. Multiple rounds of talks failed, though India’s official stance has been that the FTA talks will continue, irrespective of Trump’s tariff imposition.

The Brief - Trump

How India Plans to Future-proof Trade as Trump’s Tantrums Continue