Why India should be wary of Trump's trade deals with EU, other nations
Trump has firmly set a template by pushing major economies to a corner using America's economic and military heft; India could be the next
US President Donald Trump has pulled off trade deals with some major economies by extracting major tariff concessions and commitments to invest in his country even while conceding very little in return.
These are disconcerting developments as India prepares for the sixth round of negotiations with the Trump administration in the second half of August.
Also read: US, EU seal trade deal with 15 pc tariffs
The latest US trade deal with the 27-nation European Union (EU) is particularly disturbing for the template it sets. The two together account for 30 per cent of global trade.
One key element of this is 15 per cent tariff on EU goods and services entering the US — which is lower than the 30 per cent reciprocal tariff threatened earlier, though. This excludes a 50 per cent tariff on steel and aluminium.
India has already set a precedent in its FTA with the UK by lowering tariffs, letting UK firms participate in government procurement, and diluting safeguards against exploitation by Big Pharma.
In return, Trump said, the EU is “opening up their countries at zero tariff”.
EU’s hands tied
The EU’s zero-tariff offer includes American planes and plane parts, some chemicals and agricultural products. The other is the EU’s commitment to boost investments in the US by $600 billion, including in American military equipment, and spend $750 billion on energy — liquified natural gas, oil and nuclear fuel to cut down its reliance on Russian energy.
How US trade deals could hurt Indian economic interests
♦ These deals extract high concessions, offer little in return
♦ EU agreed to zero tariffs, $600bn investment, energy purchases
♦ Japan accepted tariffs, $550bn investment aiding US chip sector
♦ Indonesia conceded critical mineral access, lifted tariff barriers
♦ India has already cut tariffs on bikes, tech, and digital services
♦ US pressures India on weapons, energy, and agriculture imports
♦ Indonesia's US deal weakens India’s stance on food security
♦ Tariff gap may hurt India’s export competitiveness to the US
Reports suggest that the EU took the deal because it can’t risk a trade war with the most powerful economy when its growth is sluggish and the European Central Bank has warned against “exceptionally uncertain” global trade.
Also read: How India is dismantling its protectionism with UK FTA | Big picture, finer points
Besides, the EU is heavily dependent on the US for security; an upset Trump may potentially lead to the US pulling out its military bases in Europe, stopping military support to Ukraine, and withdrawing from NATO.
Japan's gain and loss
In its trade deal with Japan, the US imposed 15 per cent tariffs and also secured investment of $550 billion, which is expected to finance Taiwan chipmakers in the US.
The 15 per cent tariff applies to Japan’s automobiles and parts also — giving it an advantage over other major vehicle exporters who face 25 per cent tariff since April.
In contrast, the US’s deal with the UK imposes 10 per cent tariff on most goods entering the US, including cars, engines and aircraft parts.
Indonesia gives in
The US deal with Indonesia is very concerning for India too.
Indonesia stood with India in key areas of fight with bigger economies, but has now conceded those grounds to the US. It guarantees access to critical minerals, buy American aircraft, agricultural products, energy, and commits to WTO moratorium on tariff on electronic transmissions at the cost of developing nations — even as the US flouts WTO openly.
Also read: India faces trade trap risks as US-Indonesia deal sets dangerous precedent
Indonesia also eliminated 99 per cent of its tariff barriers. In exchange, Indonesia faces a 19 per cent reciprocal tariff.
India’s negotiations with the US remain inconclusive; the US trade team is expected in the second half of August for the sixth round of talk.
More concessions expected
But the signs are ominous — not only because the US could back other major economies. India had a meltdown in the face of Trump’s charge of it being “tariff king”, even before he announced 26 per cent reciprocal tariff in April.
The US may not make India commit to invest like it did with the EU and Japan, but Trump has made no secret that he wants India to buy American weapons, including F-35s, and oil and gas. Buying F-35s would compromise national security.
To placate the US, India, in its February 2025 Budget, cut tariffs on several items — high-end motorcycles, cars and smartphone parts that benefit America’s Harley-Davidson, Tesla and Apple, respectively; cut tariff on bourbon whiskey and eliminated 6 per cent equalization levy (Google tax) on digital advertisements for tech giants like Google, Meta and Amazon.
Trump’s one-time ally Elon Musk has gained entry in automobiles (Tesla) and his Starlink has received all permissions to operate.
Also read: 'To fully capitalise on FTA with UK, India must outperform Chinese exports'
More such concessions are to be expected, even if little is offered in return. India has already set a precedent in its FTA with the UK by lowering tariffs from 15 per cent to 3 per cent on 90 per cent of goods, letting UK firms participate in government procurement, and diluting safeguards against exploitation by Big Pharma. More of the same may follow in the US deal.
Agriculture and energy
Agricultural import is another big concern. The US has been pushing India to open up trade in several items. Indonesia’s concessions to the US matters because India has lost a friend who stood with it on food security and protection of small farmers.
The US may not make India commit to invest like it did with the EU and Japan, but Trump has made no secret that he wants India to buy American weapons, including F-35s, and oil and gas. Buying F-35s would compromise national security because the Air Force uses French and Russian fighter jets with supporting infrastructure, which wouldn’t be the case with F-35s.
Also read: We negotiate from position of strength, not under deadlines: Goyal on US trade deal
The other area to watch is energy. Trump wants India to pull away from Russian and Iranian oils (India firms were sanctioned for this recently). This would work to India’s disadvantage. After the Russia-Ukraine war broke out in 2022, India accessed large amounts of cheap Russian oil — which wouldn’t be the case anymore.
Will India benefit?
But what will India gain for conceding to the US’ demands? That is not clear yet.
To what level it lowers the reciprocal tariff of 26 per cent will determine whether Indian goods and services retain their cost competitiveness against 10 per cent for the UK, 15 per cent for the EU and Japan, and 19 per cent for Indonesia. That will determine how high Indian exports of pharmaceuticals, electronics, automobiles, chemicals and textiles to the US are impacted.
These are the ones generating maximum value but also face the highest tariff differentials with the US, making them vulnerable. The 50 per cent tariff on steel and aluminium is likely to remain unchanged.
