India gives US stern answer, but can do little to ward off Trump’s antics

New Delhi’s stern response to US President Donald Trump’s latest threat of “substantially raising the tariff paid by India to the USA” for buying discounted Russian oil “for big profits” shows India has been pushed hard against the wall with no wriggle room.

India said the threat was “unjustified and unreasonable” and that it would do what it takes to safeguard “national interests and economic security”. Much before that, trade experts, other economists, and former diplomats had urged India to stand up to Trump’s bullying and prepare the domestic industry to compete globally by dismantling tariff and non-tariff barriers and raising product quality.

Also read: Russia slams US for ‘illegal pressure’ on India over oil, arms deals

There seems to be little else that India can do to ward off Trump’s threats. Here is how things stack up against India:

India can’t play game of optics

A standout element in Trump’s trade deals with big trading partners is extracting commitments to invest in the US economy to offset trade deficits. The EU committed to investing $600 billion and buying $750 billion in energy, while Japan plans to invest $550 billion and Korea plans to invest $350 billion. These commitments may not translate into reality, but the optics matter. For example, a day after the EU signed the deal, two senior European Commission officials admitted that the investment couldn’t be guaranteed because it would exclusively come from private companies, with public investment contributing nothing, and as a public authority the EU couldn’t guarantee that.

But no such optics can be staged by India. The Department of Economic Affairs (DEA) data show that India’s total overseas direct investment (OFD) averaged $17.9 billion during FY23-FY25. Of this, 15 per cent, or an average of $2.7 billion, went to the US. This can’t be scaled up to the level that would attract Trump’s interest. Subhash Chandra Garg, former Finance Secretary, explains why.

Also read: India rebuts US, EU criticism on Russian oil imports following Trump penalty

Has no capital, tech to offer to US

He says it is India that needs foreign direct investment (FDI) and technology. It has no capital or technology to export or offer to the US, adding, “Which Indian company will invest in the US in new industrial goods like semiconductors and EVs that the US fancies? Indian companies get their technologies from others”.

Trade economist Biswajit Dhar is equally blunt: “We are starved for capital. We need money. How on earth can we invest in the US?” A scan of news reports shows not many Indian companies are keen. The Adani group had revived plans to invest $10 billion in the US (nuclear power and utilities, and ports) after Trump’s re-election, but put it on hold after US agencies initiated action in an alleged bribery case against one of its companies in a solar energy deal. Tata Technologies, a global engineering and digital service with a large presence in the US, was keen to invest more but went into a wait-and-watch mode after the reciprocal tariffs hit.

Also read: Have India's Russian crude imports endured amid Trump tariff tantrums?

Last heard, Reliance Industries was gearing up to import US ethane for its plants. It may source its oil from the US now, along with Nayara, under the changed circumstances. They are the major buyers of the discounted Russian oil, which they refine and export to Europe. But that comes with a cost because of the price difference between the Russian crude and the rest. The same holds for oil PSUs, though their main market remains local consumers.

High cost of US oil, little gain from F-35

According to Sumit Ritolia, the lead researcher at maritime intelligence agency Kpler, the landing cost of Russian oil is lower by $5-6 per barrel. Moving away from it would cost India $4-5 billion a year at this price differential, but the actual could be much more because sudden demand on non-Russian oil would raise their cost. All this would lead to domestic inflation.

As for buying US weapons, Dhar says, he found India imported eight times more weapons from Russia than the US during 2000-2022. The Russian weapons are much cheaper and come with technology transfers. US weapons come with many conditionalities, like restrictions on dual use and prior permission for use, and may not come with technology transfers.

Also read: Trump’s tariffs on India spare Russia ties for now, but threaten exports

Dhar thinks buying a few F-35 fighter jets wouldn’t be enough for Trump, who is now backing Pakistan more than India and is so unpredictable that there is no guarantee he wouldn’t just walk away after that.

High political cost of opening agri, dairy markets

Opening up the agriculture and dairy sectors is also not an option for India. Agriculture has always been politically sensitive. Farmers are pushing it back hard. An additional problem is genetically modified (GM) soybeans and corn that Trump wants India to buy. GM food also faced strong opposition from farmers and others for long. In the case of dairy, US cattle feed is suspected of containing animal parts and is regarded as “non-veg” by the majority community. Allowing dairy items would hurt religious sentiments. As for offering more tariff concessions to the US, there are no supporters of this.

Also read: Putin-Trump tango turns into fisticuffs; Modi trapped in between

Garg says if Trump’s objective is to wipe out the trade deficit with India, then “what is the point of India doing trade with the US?” Arguing that the rest of the world should have refused tariff concessions, he asserts that since American consumers need clothes, medicines, and other items they don’t produce, Trump would have seen reason or inflicted the tariff on them. After all, Trump has kept a large number of products in the “exempted categories” which are out of his reciprocal tariffs. These items range from pharmaceuticals to energy products, electronics, and semiconductors (including computers, tablets, smartphones, and integrated circuits).

Unpredictable Trump

There is yet another reason for experts to be wary of Trump – his unpredictability. Garg points to the way Trump first humiliated Ukrainian President Volodymyr Zelensky, and then changed his stand after getting his deal, preferential access to Ukraine’s rare earth minerals. He is now threatening Russian President Vladimir Putin to stop the Russia-Ukraine war. “Trump didn’t ask India about Russian oil imports earlier; he is raising it now and may change his stand again if he has a deal with Putin,” Garg argues.

Also read: Trump says ‘he heard India will stop buying Russian oil’, calls it a good step

Pronab Sen, former chairman of the Standing Committee on Statistics, also flags this aspect, saying that today Russian oil is an issue for Trump, tomorrow it could be something else. Rather than giving in, he suggests, India should quietly negotiate the deal and let everything come out of it.

Sudipto Mundle, chairman of the Centre for Development Studies, dismisses the idea of offering more not only because India doesn’t have anything to offer, but also because it would make Trump bully India even more. On the contrary, he says, “We should raise our tariff against the US.”