India has multiple options to counter America's unilateralism, expand its trade and assert its sovereign rights that Trump is undermining by punishing it for buying weapons and oil from Russia. Image: iStock
India has 7 options to counter Trump tariff, assert sovereign rights
From dismantling trade barriers to embracing China for tech and investment to going firmly for de-dollarisation, here is what New Delhi can explore
US President Donald Trump’s 25 per cent tariff strike “plus penalty” should be seen as a temporary setback because he confirmed later that trade negotiations with India were on.
If the “plus penalty”, which Trump didn’t specify, is assumed to be the 10 per cent additional tariff he had threatened BRICS members with for moving away from the dollar trade, the total tariff on India would be 35 per cent – up from average of about 3.3 per cent until now (against India’s average tariff of 17 per cent against the US ).
This 35 per cent tariff is quite sharp, at par with Bangladesh (35 per cent) but lower than other neighbours Pakistan (29 per cent) and Sri Lanka (30 per cent) and substantially lower than 15 per cent for the European Union, Japan and South Korea, 10 per cent for the UK, 19 per cent for Indonesia and 20 per cent for Vietnam (40 per cent for on goods trans-shipped through Vietnam).
No choice
Indian exports would be hit but depending on how India moves forward in trade negotiations with the US, it may come down. The next round of talks is scheduled from August 25.
India has no choice but to engage the US in negotiations because of the latter’s economic and military heft and Trump’s unpredictability. Yet, it has multiple options to counter Trump’s unilateralism, expand its trade and assert its sovereign rights that Trump is undermining by punishing it for buying weapons and oil from Russia.
Seven options
Here are seven options:
1. Dismantle tariff and non-tariff barriers
The first Chief Economic Advisor of the NDA government, Arvind Subramanian, was the first to raise an alarm about India erecting tariff walls after 2014. He pleaded for a return to the 1991 trade liberalization.
He provided economic evidence for his case: Compared to 1952-1991, trade liberalization of 1991 more than doubled export growth to 11 per cent (from 4.5 per cent) and nearly doubled GDP growth to 6.5 per cent (from 3.5 per cent) during the subsequent period of 1992-2019.
But now, during FY13-FY25, export growth is down to half of that at 5.4 per cent and GDP growth down at 6.1 per cent.
This is the best argument for dismantling tariff walls, along with non-tariff walls of Quality Control Orders and whimsical restrictions and bans on trade in commodities.
Under Trump’s pressure, India began to reduce tariffs in and after the February budget, and continued with the FTA with the UK.
India must break its tariff and non-tariff walls for its own sake – to revive export and growth. Free trade means zero-tariff. That shouldn’t, however, mean India should give up its WTO-mandated right to Special and Differential Treatment (SDT), granted to all developing countries, but use it wisely and strategically.
2. Fight for rule-based WTO regime
The best antidote to Trump’s unilateralism and bullying – by imposing high tariffs and also extracting investment and purchase of weapons and energy from the US for the EU, Japan and Korea – is the rule-based WTO regime.
Trump weakened the WTO in his first term by paralysing its dispute resolution mechanism and has completely bypassed it in his second term. India should actively collaborate with other big groups and nations like the EU, BRICS, the UK, Japan and Germany to restore the primacy of the WTO in global trade.
3. Embrace China for tech and investment
China is not only the second biggest economy, it is the global leader in exports, manufacturing, cutting-edge technologies across sectors, especially in green energy, semiconductors, rare earth magnet and also a major player in global value chains.
Keeping away from China makes India vulnerable on multiple fronts and hampers its future growth for these reasons. India must also dismantle its walls against China.
The Economic Survey of 2023-24 recognised and precisely advocated this.
It asked India to join the China-led mega trade bloc RCEP, allow investment (FDI) and inflows of its engineers and collaborate in all sectors. Else, it warned, China’ dominance over products, technologies and value chains would make India “vulnerable to potential supply disruptions” and “risk of economic coercion…for political leverage”.
China has stood up to Trump’s bullying too, making it a potentially powerful ally in global trade.
4. Stand with BRICS to promote de-dollarisation
India began well in joining the BRICS in developing a common currency and engaging in trade in local currencies until then to reduce the dominance of US dollar that enables Trump to dictate terms.
Unfortunately, India surrendered to Trump’s threats and declared in January this year that de-dollarisation wasn’t its policy or strategy. In contrast, Brazil, another member, stood firm.
The BRICS has China, Russia and many oil-rich countries as members (Saudia Arabia, Russia, Brazil, the UAE and Nigeria) and their numbers are growing too. Collectively, the BRICS is very powerful: 37.3 per cent global GDP (more than double the EU’s 14.5 per cent) and about 40 per cent of global share of exports and crude oil production.
If the BRICS nations stand together, they can’t be easily bullied by Trump.
5. Join mega trading blocs
In addition to the China-led RCEP, India should also join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the US had led to counter the RCEP but withdrew later. China is in queue to join it.
Similarly, India should join the trade pillar of the Indo-Pacific Economic Framework for Prosperity (IPEF), which it skipped, signing up for only the other three pillars (supply chains, green energy, tax and anti-corruption).
The US is a major player in the IPEF but it also has several other countries of trade interest to India, like Australia, Indonesia, Japan, South Korea, Malaysia, New Zealand etc.
These are powerful trading blocs controlling most of the global trade. Being part of these trading blocs increases India’s options, heft and negotiating power. Many countries are members of more than one of these mega trade blocs.
6. Expand trade with neighbours and Africa
India can’t rely only on developed nations for trade.
It claims to have a “Look East” policy but its trade relations have not improved and relations with neighbours have soured. It claims to champion ‘Global South’ and promotes ‘South-South Cooperation’ but has shied away from engaging African countries in free trade talks.
India needs to address this contradiction and engage the African Union with FTA. In contrast, China has not only expanded its footprints in India’s neighbourhood, it has done so in Africa too.
In June this year, it held the second trilateral dialogues with Pakistan and Bangladesh for wide economic collaborations. They have pulled in Afghanistan to it now.
7. Recraft diplomacy
Diplomacy is about forging mutually beneficial relations, recognising that there are no permanent allies or foes. Cultivating exclusive relationship with individual political leaders of other countries, ignoring their political rivals, may cost.
India could have avoided ignoring Trump during his 2024 Presidential contest (the Prime Minister visited the US but skipped meeting him in September 2024) – in contrast to promoting Trump’s candidacy in his failed bid of 2020.
Similarly, Trump announced a joint oil project in Pakistan and talked of exporting oil to India in future, soon after imposing 25 per cent “plus penalty” on India.
This perhaps could have been averted with skillful diplomatic engagements. A course correction is imperative.
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