Why Trump's tough stance on trade and visas puts Modi govt in a bind

As is well known, Trump is holding India responsible for not concluding the agreement. Hence, he has imposed a 25 per cent reciprocal tariff on all Indian exports to the US. In addition, he has also added another 25 per cent tariff because of India’s purchases of oil from Russia.

Consequently, Indian exports to the US currently face a 50 per cent tariff.

Eyeing dairy sector

According to the US Trade Representative’s Office in 2024 Indian exports in goods to the US amounted to US$ 87.3 billion while US exports in goods were US$ 41.5 billion. Thus, India had a trade surplus in goods of US$ 45.8 billion. However, in the areas of services US and India exported an almost equal amount in the same period. US exports in services were $ US41.8 to India and India exports to US were $US 41.6.

Also read: Tharoor says India–US ties steady despite Trump tariffs, H-1B visa fee hike

These figures show that Trump is really focused on reducing the trade deficit in goods. He wants India to open up its market to US products especially in agriculture and dairy. These are sensitive areas for India because Indian farmers and milk producers may suffer if US exports are allowed in these areas. Around 50 per cent of the Indian population is engaged in agriculture though it contributes roughly only 15 per cent of its GDP.

This shows that the poor are involved in various aspects of agricultural activities and no government can abandon their interests or to be seen to be doing so. It will have to pay a very heavy price politically if it is perceived to be giving in to Trump’s pressure on this point.

In the case of dairy, India can hardly freely allow imports of US milk products without adversely impacting the interests of milk producers. An additional difficulty is that it is believed that cattle feed in the US includes, in many cases bone-meal. This may offend the faith of the Hindus at a time when the BJP’s politics is based on consolidating the Hindu vote and it has also raised Hindu consciousness within the country.

Textiles sector disrupted

A large portion of Indian exports to the US is from labour intensive industries such as textiles and marine products. The imposition of 50 per cent tariffs has begun to disrupt Indian exports and it is leading to lay-offs. There are reports of migrant labour from Bihar working in textile and fabrics manufacturing in Tamil Nadu being laid off and returning to their home state.

With Bihar elections scheduled to take place in November the return of these migrant workers can only harm the NDA in the elections.

Similarly, exports of Indian carpets to the US will be hit and notably Mirzapur is an adjacent district to Modi’s parliamentary constituency of Varanasi.

Another blow

Even while India was dealing with the destabilization caused by the increase in tariffs, Trump has dealt another blow by imposing a $US 1 lakh fee for H-1B visas to enter and work in the US.

US and Indian Information Technology Companies and also such major multinational companies as Amazon sponsor Indian IT professionals on H-1B visas. A total of 65,000 such visas are issued to foreign nationals from abroad and 20,000 to foreign nationals who pass out of US academic institutions.

Also read: Trump’s H-1B shocker: Can Indian IT sector weather the storm? | Capital Beat

It is estimated that around 70 per cent of all H-1B visa holders are Indian nationals and within India a large number come from Andhra Pradesh and Telangana. The current H-1B visa fee and accompanying charges is only about $US 5,000. These high visa rates will severely damage Indian technology companies and also the prospects of Indians working on these visas in US companies in the US. This is a particularly sensitive issue in Andhra Pradesh which is part of the NDA.

Political necessity

In effect while Trump’s actions in these two areas impact Indian interests adversely, they may also have a political effect on the BJP which following the 2024 elections does not have a majority on its own in the Lok Sabha. Hence, it is a political necessity for the Modi government to try to get Trump to adopt a more reasonable stance on both these matters. It is difficult to see him immediately act on the H-1B visas issue because it is popular with his MAGA constituency but he can be persuaded on the tariffs but only if the Modi government is willing to make concessions.

After the US decision on the H-1B visa, MEA issued a statement which noted inter alia “skilled talent mobility and exchanges have contributed enormously to technology development, innovation, economic growth, competitiveness and wealth creation in the United States and India. Policy makers will therefore assess recent steps taking into account mutual benefits, which include strong people-to-people ties between the two countries. This measure is likely to have humanitarian consequences by way of the disruption caused for families. Government hopes that these disruptions can be addressed suitably by the US authorities”.

Also read: Thanks, but no thanks. India doesn’t really need US soybean, corn or milk

All these points are unlikely to impact Trump who despite his proclaimed “friendship” with Modi has no reluctance to pursue his agenda even it embarrasses his “friend” and may damage him politically.

Jaishankar-Rubio meeting

EAM Jaishankar’s knowledge and experience of dealing with the US is believed to be one of the key reasons why Modi relies on him so much in the framing of India’s foreign policy.

Jaishankar met his US counterpart US Secretary of State Marco Rubio on September 22 in New York. Following the meeting Jaishankar put out these comments on X, “Good to meet @SecRubio this morning in New York. Our conversation covered a range of bilateral and international issues of current concern. Agreed on the importance of sustained engagement to progress on priority areas. We will remain in touch”.

The US embassy in India also sought to give a positive spin to the Jaishankar-Rubio meeting. In a press release on September 23, the US embassy in India stated, “Secretary Rubio, reiterating that India is a relationship of critical importance to the United States, expressed his appreciation for the Indian government’s continued engagement on a number of issues including trade, defense, energy, pharmaceuticals, critical minerals, and other items related to the bilateral relationship. Secretary Rubio and External Affairs Minister Jaishankar agreed the United States and India will continue working together to promote a free and open Indo-Pacific region, including through the Quad”.

No clarity on trade, tariffs

There is nothing in this US embassy statement that indicates that the US is willing to pay heed to the Indian viewpoint on trade and tariffs and the H-1B visas.

Media reports indicated that Piyush Goyal met the US trade representative Jamieson Greer in New York. Obviously, Goyal’s brief is to bring the trade talks to an early conclusion. Jaishankar would have also urged Rubio for the same. As of now there is no indication that Trump is willing to find a middle ground on tariffs.

The question is therefore will the Modi government make concessions on this important issue and if so how and to what extent.

Naturally, even it does take the route of meeting Trump’s demands it cannot open up agriculture and dairy completely. Will Trump agree to a gradual approach? Even if he agrees how will Indian farmers and milk-producers react? This is despite there being no question of Modi allowing US milk to come to the Indian market but even if milk products come the question of how the milk producers respond is open.

The US embassy statement mentions the Indo-Pacific region and is silent on India’s western neighbourhood. This only reinforces the impression that the US wants Pakistan to play a more important role in India’s extended western neighbourhood.