Geopolitics and global economics are deeply intertwined. A perceived assault on one segment is bound to have a ripple effect on the other. Trump announced 25% tariffs plus a penalty on India a day before the putative deadline. Some analysts saw this coming.
Sanctions and threats have been an integral part of Trump’s
coercive diplomacy. In his first tenure, President Trump signed the CAATSA
(Countering America’s Adversaries Through Sanctions Act) into law in 2017 and
threatened India with dire consequences if India goes ahead with the purchase
of Russia’s S-400 Triumf air defence system. Despite the sanctions threat,
India went ahead with the Inter-Governmental Agreement (IGA) for the procurement
of S-400, signed in 2016. India managed to obtain a limited waiver in 2018.
In 2018, after unilaterally pulling out of the JCPOA, Trump
reimposed sanctions on Iran and warned countries against having business ties
with Tehran. Under mounting pressure, India halted oil imports from Iran in May
2019 - its second-largest crude supplier. Just two months earlier, India was
forced to stop its oil supplies from Venezuela due to similar US sanctions, its
third-largest oil supplier.
India thus grappled with Trump’s tertiary sanctions
alongside punitive tariffs on steel, aluminium and washing machines. In a
further blow, Trump 1.0 even revoked the Generalised System of Preferences
(GSP) for India in June 2019, with reinstatement still pending. Notably, an
economic study of Trump’s first term showed that tariffs hurt the imposing
country more than its targets, with prices of intermediate products rising by
10% to 30%1.
Back in his second term, Trump defiantly pursued tariffs as
a panacea for the US’s mounting debt with a familiar refrain that “they
(countries) are ripping us off”. His
Liberation Day tariff announcement shocked global markets into disarray. Unclear
of the final rates while importers absorbed the initial shocks, which soon
rippled through economic indicators.
A study by Yale Budget Lab noted a 1.8% increase in US consumer
prices, with inflation peaking in the month of June. The concomitant burden is
pegged to an average equivalent of $2400 per US household2.
Besides financial strain, what has triggered uncertainty is the phenomenon
dubbed by critics as TACO -Trump Always Chickens Out. Characterised by deadline
extensions and unpredictable tariff rollbacks, the erratic trade policy-
strategically spun as ‘negotiation’- has bolstered the world's view of tariffs
as tools of Trump’s coercive diplomacy.
Hit by an average of 15% US tariffs, the steepest since the 1930s,
the global economy is expected to shrink by 3% as per the International Trade
Centre (ITC). While the geostrategic relationship remained relatively insulated
from the economic warfare in Trump 1.0, arbitrary trade levies in Trump 2.0,
laced with hostility, might have a long-lasting effect on America’s strategic
relationship with countries.
In a frenzied bid to dodge impending US tariffs before the
Aug 1 deadline, countries like Indonesia, Japan, South Korea and the EU offered
broader access for US products to their markets along with sizeable investments.
Doing away with its threshold limits on rice imports, a notable red line in
trade, Japan went out of its way to placate Trump, promising $550 billion
investment. The EU offered to invest $600 billion in the US and purchase $750
billion worth of energy products. Similarly, South Korea agreed to invest $300
billion in the US for 15% reciprocal tariffs. Buoyed by the favourable deals,
Trump announced a 25% tariff plus a penalty on India.
PM Modi was among the first leaders hosted by Trump 2.0 when
both leaders ambitiously set a bilateral trade target of $500 billion by 2030
and promptly initiated trade negotiations. Playing his hand at different
strategic fronts, Trump positioned himself as a peacemaker in the
India-Pakistan conflict during Operation Sindoor. This intervention ran
contrary to India’s hardline policy stance of ‘no third-party involvement in
bilateral matters’. Trump’s untenable claims stirred bitter political dissensions
in India, forcing the ruling dispensation to issue numerous clarifications on a
cross-border operation that inflicted a mortal blow on Pakistan’s military and
strategic apparatus.
Trump’s volte face on Pakistan is quite a story. In 2018,
Trump remarked, “The United States has foolishly given Pakistan more than 33
billion dollars in aid over the last 15 years, and they have given us nothing
but lies & deceit, thinking of our leaders as fools. They give safe haven
to the terrorists we hunt in Afghanistan, with little help. No more!”. Fast
forward, and Trump’s hosting lunch for Pakistan’s Field Marshal Asim Munir has
caught India by surprise. Recalibrating Pakistan-US ties, Munir reportedly
offered the US access to mineral wealth in Balochistan. Doubling down on charm
offensive, Pakistan has invested in the Trump family’s cryptocurrency firm,
World Liberty Financial, towards the end of April. Indeed, pandering to Trump’s
ego, Pakistan has also nominated him for the Nobel Peace Prize.
Trump’s claim to end hostilities has worked to Munir’s
advantage, forcing the Pakistan government to elevate him to the Field Marshal position
despite suffering a humiliating blow in Operation Sindoor. While India-US trade
negotiations continued at a halting pace, India’s disapproval of Trump’s
mediation had its impact, with the US President telling Apple to halt iPhone
manufacturing in India. In July, he warned nations backing BRICS with a 10%
extra tariff for their attempts to weaken the dollar.
Negotiating the Ukraine peace talks- a cornerstone of his
poll campaign that remains unfulfilled is taking the best of him. Frustrated by
stalled negotiations with Russia, wielding economic firepower, Trump warned of
a staggering 100% tariffs on countries importing Russian oil, targeting China,
India and Brazil.
Trump’s barrage of Truth Social posts leaves no ambiguity
about his intention to unleash a full-scale ‘economic warfare’. His tirades can
be zeroed into three provocative themes- first, a scathing attack on what he
calls, “most strenuous and obnoxious non-monetary trade barriers”;
second a brewing discomfort over India’s defence and energy purchases from
Russia- “India has brought cast majority of equipment from Russia and are
Russia’s largest buyer of energy along with China” and a veiled economic
threat suggesting “they (India and Russia) can take down their economies
together”.
Finally, in a move to upstage Modi and put the two
South Asian neighbours on an equal footing, he announced a new US-Pakistan
partnership: “We have just concluded a Deal with the country of Pakistan
whereby Pakistan and the United States will work together on developing their
massive Reserves. We are in the process of choosing an oil company that will
lead this partnership. Who knows, maybe they’ll be selling Oil to India”.
Obviously, the “non-monetary trade barriers” are an
apparent reference to India’s firm stance on protecting its agriculture sector,
denying the entry of GM crops. Dairy has been another flash point as the
classification of US dairy falls under “non-vegetarian milk”. The US
termed this labelling as ‘unjustified non-trade barrier’. However, milk has
religious, spiritual and cultural significance, and hence permitting US dairy
products is unacceptable for India. US agricultural products can potentially
disrupt India’s MSME sector involved in exports. Close to 50% of India's
population depends on agriculture for their livelihood, and India has vowed to
protect the interests of farmers.
Trump's repeated claims of leveraging trade deals to mediate
India-Pakistan tensions revealed a disturbing pattern of coercive diplomacy and
weaponisation of tariffs. In doing so, Trump has overstepped on India’s red
lines – India brooks no external interference in its domestic affairs. By
pitching Pakistan against India and attempting to hyphenate both, Trump earned
India’s ire. Trump’s pivot to Pakistan in South Asia will have a telling impact
on the US Indo-Pacific framework. Trump’s public rebuke of India’s oil imports
and defence purchases from Russia has been an open assault on its strategic
autonomy.
By attempting to trample on the twin non-negotiables-
securing national interests and strategic autonomy- Trump has attempted to
provoke India. His derogatory description of India as a “dead economy”
and “we have done very little business with India” reeked of arrogance
and a high-handed approach to pressurise India.
Trump’s announcement comes a day ahead of the landmark
India-US collaboration on the NISAR Mission. Lest we forget, India’s rapid
strides in space research are a poignant reminder of the US roadblocks which
seriously derailed the satellite programme. Refusing to transfer technology, the
US objected to India’s deal with Russia for the transfer of cryogenic engines
and tech transfer, citing Missile Technology Control Transfer (MTCR) violations
and imposed sanctions.
Simultaneously, the US crippled India’s indigenous efforts
by implicating the project head, Nambi Narayan, in a false espionage case.
India and the US relationship is also etched by a period of Comprehensive
sanctions under the Glenn Amendment imposed by the US President post-1998,
India’s Pokhran nuclear testing. However, the relationship improved after 9/11
when Washington realised the strategic convergence with India in the national
security domain.
China’s emerging economic superpower rise heralded a new
dawn in India-US relations. In the past 25 years, countries have diligently
nurtured the partnership by expanding the arenas of cooperation. The US sees
great relevance in India as a counterbalance amid China’s assertive and
aggressive rise and as an indispensable partner in the Indo-Pacific region.
Unfortunately, Trump’s blunt political message devoid of political nuance
demonstrated a raw geopolitical muscle akin to a bully, reigniting fears of the
reliability of the US partnership.
The reckless abandon and projection of power, smacking of
transactionalism, will force India to not only diversify its trade and supply
chains but also review its reliance on the US. Also, Trump’s cosying up to
China is not lost on India. While India was forced to stop energy imports from
Iran and Venezuela, China continues to buy 90% of Iranian oil. Beijing is also
the largest buyer of oil from Venezuela and imports Russian crude. In June,
taking to Truth Social, Trump stated, “China can now continue to purchase oil
from Iran”. Trump’s posturing of China as a dove for rare earths exposes
inherent contradictions in the US-China policy.
Trump’s unpredictability, coupled with bluster and blackmail,
will raise more questions about America’s credibility as a mature power. On the
other hand, India's resistance to US pressure will make countries begrudgingly
respect Indian leadership. Unlike modern nation-states, a resilient civilisational
state like India has renewed ‘Swadeshi’ push, urging citizens to embrace
indigenous goods.
U.S. sanctions are expected to significantly affect India's
exports of gems and jewellery, seafood, textiles, and auto components. However,
India can cushion the blow through a strategic mix of domestic reforms and
proactive global engagement—much like it did in the aftermath of the more
severe post-Pokhran sanctions, which ultimately spurred the country’s pursuit
toward self-reliance.
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