Indian govt and exporters on a wing and a prayer as Trump’s tariff bites

Ever since US President Donald Trump imposed an additional tariff of 25 per cent on India on August 6 for importing Russian oil, which would come into force on August 27, the first 25 per cent tariff being in force from August 7, there have been a flurry of activities.

The very next day, Trump nixed the sixth round of trade negotiations scheduled for August 25. Indian officials have confirmed that it hit pause with no words from the US delegation about its visit.

Also read: Why India escaped Trump’s wrath on its defence ties with Russia

Two days later, on August 8, Trump announced he would meet Russian President Vladimir Putin for Ukraine peace talks in Alaska on August 15 – after targeting Russia through India for importing its oil. Russia faces sanctions from the US and the EU for its war against Ukraine.

There were many other developments too.

Rapid diplomatic developments around tariff and Ukraine war

On August 8, Prime Minister Narendra Modi and Putin had a talk, following which Modi posted on X that they “reaffirmed” commitments to “further deepen the India-Russia Special and Privileged Strategic Partnership” and that he would be hosting Putin later this year. Russia had defended India immediately after Trump’s additional 25 per cent tariff on India, saying, “sovereign countries have the right to choose their own trading partners”.

Also read: How will US tariff hit rupee, foreign investment and the common Indian?

On August 7, Modi had ruled out opening up agriculture to US imports. Before that, on August 6, the Ministry of External Affairs (MEA) had asserted, India would protect its “national interest and economic security” – the day Reuters quoted a senior Indian government official blaming poor judgement and mishandling by top Indian advisors for the penalty tariff. Interestingly, the official was quoted lamenting: “We lacked the diplomatic support needed after the U.S. struck better deals with Vietnam, Indonesia, Japan and the EU…We're now in a crisis that could have been avoided”.

Back to August 7. Brazil’s President Luiz Inácio Lula da Silva called up Modi. Lula revealed: “We discussed the international economic scenario and the imposition of unilateral tariffs…We reaffirmed the importance of defending multilateralism and the need to address the challenges of the current situation…”

Brazil also faces a 50 per cent US tariff, but for a different reason – for refusing to end prosecution of Trump’s friend and former Brazilian President Jair Bolsonaro.

Is India changing its strategy for Trump?

Lula’s disclosure and India’s reaffirmation of strategic ties with Russia bring a new element in India’s strategy – contrary to what Indian officials had told multiple newspapers.

Also read: Trump’s 50 pc tariffs: Why Kerala will feel the pinch

The officials had told several national dailies that India’s strategy was to keep quiet, not give in and bide time for the year-end elections to the House of Representatives, when Americans may feel the pinch from tariff and politicians could be responsive to their woes.

It is not clear if Trump’s tariff will escalate to BRICS, although four major countries in Trump’s crosshairs are its members: Russia, China, India and Brazil.

Trump has repeatedly threatened BRICS for its plans to develop a common currency for trade – to rival the USD. In December 2024, he threatened with a 100 per cent tariff; in July this year, he again threatened: “Any country aligning themselves with the anti-American policies of BRICS, will be charged an ADDITIONAL 10% tariff.”

Trump has another reason to be wary of BRICS. Morgan Stanley says the USD value dropped by about 11 per cent in the first half of 2025 – after Trump came back to power – its biggest decline in over 50 years, marking the end of its 15-year bull run.

BRICS is a powerful group of 10 countries, the others being South Africa, Saudi Arabia, Egypt, the UAE, Ethiopia, Indonesia and Iran. Together they account for 37.3 per cent of global GDP, 40 per cent of global exports and 40 per cent of crude oil production.

Trump’s boundless duplicity

Trump imposed a penalty tariff of 25 per cent on India for its trade ties with Russia. But the US trades with Russia. On August 4, the MEA pointed out that the US imports uranium, palladium (used in EV industries), fertilisers and chemicals from Russia. When Trump was asked, he said: “I don't know anything about it. I have to check it out.”

The MEA also pointed out that the EU, which has imposed sanctions on Russia for its war, had significantly more trade than India’s – of Euro 17.2 billion in goods in 2024 and Euro 17.2 billion in services in 2023. It said, the EU’s imports of Russian LNG made a new record of 16.5 million tons in 2024, surpassing the previous one of 15.21 million tons in 2022.

The International Energy Agency (IEA) data show the EU imported an average of 3.1 million barrels of Russian oil per day in 2022 (the year the war broke out) – as against India’s 0.9 million barrels a day the same year. Its imports dropped to 0.6 and 0.4 million barrels per day in 2023 and 2024, respectively, while India’s surged to 2 and 1.9 million barrels per day in those years.

But Trump didn’t make it an issue.

Here is another shocker.

China imports more Russian oil and yet, Trump never made it an issue either.

The IEA data show, China’s Russian oil imports were 1.9, 2.4 and 2.4 million barrels per day in 2022, 2023 and 2024, respectively – far higher than India’s.

On the contrary, Trump reduced his 245 per cent tariff on China to 30 per cent after China restored supply of rare earth minerals and magnets to the US in June. Last Tuesday, he said he was close to clinching another deal with China and if that materialised, he would meet Chinese President Xi Jinping by the year-end.

Meanwhile, there is panic in India.

Priced out, Indian exporters on standby mode

Except for the Apple and exporters of goods in the US’s “exempted” list (from electronics to pharmaceuticals), others are in standby mode. They have been priced out by the 50 per cent tariff, the highest among their peers. US orders have stopped, including from major US retailers like Walmart, Amazon, Target and Gap. A handful of textile companies with overseas facilities in Vietnam, Indonesia and Africa, plan to shift their American business there.

The government is working fast to roll out the Export Promotion Mission (EPM), announced in the February 2025 Budget with an outlay of Rs 2,250 crore. It is also preparing more relief packages, with little clue or concessions to offer to escape Trump’s wrath.

Indian stock market has tanked, Nifty50 and BSE Sensex fell by 1.8 per cent from the July 29 levels. The rupee has fallen by 0.6 per cent vis-à-vis the USD in the same period – despite the RBI selling $9.3 billion in the week ending August 1, the highest weekly fall in forex in eight months, to prop the rupee up. FPIs have accelerated their pull out, which went up from $634 million for the entire July to $1,564 million in six days of August.

Fear is mounting that investments will fall in the sectors exposed to the US market. Investment bankers estimate India’s growth would be dragged down by 40 to 100 basis points if the tariff continued for a year.

In short, a turbulent time ahead.