Donald Trump's 50% Tariffs On India Delivers Blow To Bilateral Ties

The United States has increased tariffs on Indian imports to as much as 50%, following India's purchase of Russian oil. This move, effective from Wednesday, adds a punitive 25% tariff to the existing 25% on various goods such as garments, jewellery, and chemicals. The decision could severely impact Indian exporters and jobs, especially in Gujarat, and may slow down growth in India's rapidly expanding economy.

India's trade ministry has not commented on the tariff increase. However, an unnamed government source expressed hope that the U.S. would reconsider the additional 25% tariff. The government is reportedly planning measures to mitigate its effects. Meanwhile, there was no immediate market reaction in India due to a Hindu festival closure, though equity benchmarks had their worst session in three months on Tuesday.

Impact on Trade and Economy

The new tariffs threaten nearly 55% of India's $87 billion merchandise exports to the U.S., potentially benefiting competitors like Vietnam and Bangladesh. Rajeswari Sengupta from Mumbai's Indira Gandhi Institute suggests allowing the rupee to depreciate to support exporters indirectly. She advocates for a more trade-oriented approach to boost demand.

Despite the challenges posed by these tariffs, analysts believe India can use this crisis as an opportunity for economic reform. By reducing protectionism, India could strengthen its economy while addressing issues with Washington. The country's robust domestic demand and diversified export base might help cushion some of the adverse effects.

Failed Negotiations

Efforts to negotiate a trade deal between Washington and New Delhi have stalled after five rounds of talks failed. Both sides cite political misjudgments and missed signals as reasons for the impasse. The aim was to reduce U.S. tariffs to around 15%, similar to agreements with Japan and South Korea.

Peter Navarro, White House trade adviser, stated that India could easily reduce U.S. import taxes by stopping its purchase of Russian oil. "It's real easy," he said on Bloomberg Television, suggesting that halting oil purchases from Russia would immediately lower tariffs by 25%.

Broader Implications

The tariff dispute raises questions about the broader relationship between India and the U.S., who are key security partners concerned about China. Despite tensions, both countries issued statements expressing eagerness to enhance their bilateral relationship further.

India's junior foreign minister Kirti Vardhan Singh assured reporters that steps are being taken to protect the economy from harm due to these tariffs. He emphasised India's commitment to securing energy sources from any country that benefits them.

Exemptions and Market Reactions

A notice from U.S. Customs provides a three-week exemption for Indian goods already in transit before the deadline. Certain products like steel and aluminium remain exempt under separate tariffs up to 50%. On Tuesday, the Indian rupee fell for a fifth consecutive session, reaching its lowest level in three weeks.

Sujan Hajra of Anand Rathi Group warns that up to two million jobs could be at risk due to sustained high tariffs but notes that strong domestic demand might help offset some losses. The situation underscores India's growing importance as an alternative manufacturing hub for electronics and smartphones.

The ongoing standoff highlights significant concerns over how these developments will affect future trade relations between India and the United States amidst shared geopolitical interests against China.