India reels from the shock of Trump's onslaught

Observer

a day ago

NEW DELHI — President Donald Trump's new list of tariffs on half the world's countries sent the United States' trading partners scrambling to understand how their businesses will be affected. India got the bad news a day earlier — its goods face a tariff of 25% or more — but the extra time was hardly enough to adjust to the fresh chaos.
Indian negotiators had not expected to conclude a meaningful deal in time to meet Trump's revised deadline of Aug. 1. But they did expect to be treated as well as their neighbors, and to keep haggling with U.S. officials until October or November, when Trump was invited to visit India as part of the Quad defense group, which brings together four big democracies — India, the United States, Japan and Australia — with a shared interest in standing up to China.
Instead, they were fed a heap of insults and injuries. Along with the 25% rate, one of the highest in Asia and only a point lower than what was threatened on 'Liberation Day' in April, India was informed that its existing trade barriers are 'strenuous and obnoxious'; it will be charged an untold penalty for buying Russian oil; it is a 'dead economy.' It's archrival Pakistan was praised and promised an oil exploration deal.
Hurt feelings aside, the results are confusing. Two of the biggest categories of exports to the United States from India are personal electronics, worth about $14 billion a year, and pharmaceuticals, worth $10 billion. Rajesh Sharma, executive director of India Cellular and Electronics Association, said smartphones were exempted from these tariffs; so did executives at pharmaceutical companies. But on Friday, after reading the executive order, the Global Trade Research Initiative in New Delhi concluded the opposite.
India's stock markets dipped on the news for two days running. Indian and international banks wrote notices warning that the country's generally hard-charging economic growth is likely to slow measurably as a result of the tariffs.
Then there are the unknown tariffs. On July 6, Trump wrote that countries aligned with the BRICS group, of which India is a founding member, would incur an additional 10% penalty. Then on July 14, he said that, if Russia didn't make peace with Ukraine within 50 days, he would punish its trading partners with 'secondary tariffs' of 100%.
That figure is making Indians worry anew. Trump added 'plus a penalty' to the 25% rate imposed on India, for buying Russian oil and weapons. Shashi Tharoor, a prominent member of the opposition, spoke to an Indian news agency about the possible impact. 'There's even talk of a 100% penalty,' he said, 'which will destroy our trade with America.'
There is evidence that Indian buyers of Russian oil were already pulling back before the executive order. 'Indian refiners have reduced Russian crude purchases this week,' said Sumit Ritolia, an analyst at Kpler, which tracks shipping and commodities. They were already 'looking to further diversify, amid rising concerns over potential U.S. sanctions,' having spent years taking advantage of discounted Russian oil to reduce their imports from the Persian Gulf.
Reducing the United States' trade deficit is one of the Trump administration's goals, so persuading India to buy more American oil and gas would make sense. Last year, India exported $45.7 billion more goods to the United States than it imported. It spent about three times as much importing oil. If a third of that were redirected to American sources, their bilateral trade would be evened out.
Trump's angry barrage of social media has complicated further negotiations. The breakdown of trust between Narendra Modi, India's prime minister, whom Trump called his 'true friend,' the U.S. president is likely to make it harder to complete any deal, analysts say. Indian news outlets have reported that Trump wanted to iron out some outstanding issues, after four rounds of direct talks between the two sides, in a phone call with Modi. The Indian government was anxious to avoid any of his last-minute surprises.
The U.S. commerce secretary accused India of 'slow-rolling' its trade negotiations. Indian officials and analysts say the friction is caused by a fundamental difference of approach. Trump has a penchant for quick, top-down dealmaking. India's bureaucracy moves at a methodical pace, especially when it comes to opening up the agriculture market, which is politically sensitive. India's recently concluded trade deal with Britain took three years of talks, under two British prime ministers.
On Friday, India's Foreign Ministry released a statement that put on a brave face. 'India and the United States share a Comprehensive Global Strategic Partnership,' established in 2013 between President Barack Obama and then-Prime Minister Manmohan Singh, 'anchored in shared interests, democratic values and robust people-to-people ties.' The ministry stuck to principles, revealing no plan for breaking through Trump's hard line.
'This partnership has weathered several transitions and challenges,' the statement said. 'We remain focused on the substantive agenda that our two countries have committed to and are confident that the relationship will continue to move forward.'
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