Don’t Let Don Steer You

As Modi meets Trump for the first time after his return to office, we hope the personal rapport between the two that has previously facilitated significant bilateral achievements, will work this time too. The meeting tomorrow will be in Washington DC, where their talks will focus on strengthening ties in trade, investment, and defence.While officials and ministers will have detailed discussions before the meet, India should be prepared for unexpected turns due to Trump’s aggressive negotiating style.Trump makes bold accusations – such as high tariffs on American products by a partner country or illegal immigration – and announces punitive actions to push the other side into negotiations. On the table, he offers temporary relief but seeks maximum concessions.The best way to respond to such tactics is to counter false narratives with facts and stand firm. South Korea quickly revised its trade deal with US in 2018 under Trump’s pressure, setting a precedent for more demands. In contrast, when India faced US tariffs in March 2018 on steel and aluminium, it waited for 15 months and then charged equivalent tariffs on 29 US products. We need a similar approach this time, especially on critical issues.Avoid over-hasty tariffs revisions | While Trump is right that India has high tariffs on some products, like the 150% duty on whiskey, such rates apply to only a few items. US, in comparison, has even higher top tariffs, such as 350% on tobacco.For the top 100 US exports to India – such as crude oil, LNG, coal, and diamonds, which account for 75% of shipments – the average tariff is below 5%. India has further reduced tariffs in this year’s budget on items like Ethernet switches, motorcycles, satellite ground installations, synthetic flavouring essences, and certain waste and scrap, signalling its willingness to support US interests.India should avoid cutting tariffs on the negotiating table. As such decisions have long-term consequences, it’s prudent to take the necessary time to evaluate the impacts thoroughly.Avoid mini deals too | Under WTO rules, Free Trade Agreements (FTAs) with developed nations must cover a substantial trade volume, making limited product deals legally invalid. However, even a full FTA with US may not benefit India, as Trump is unwilling to lower tariffs. Most other aspects of an FTA have already been addressed through the US-led Indo-Pacific Economic Framework (IPEF).Stand India’s digital ground | US should recognise that, unlike China, India allows US digital firms to operate and earn billions in ad revenue. As cheaper and open-source AI models like DeepSeek challenge the hegemony of US firms, India’s continued support is crucial. Also, many US Global Capability Centres use Indian data to develop AI solutions.In other areas, focus on specific actions | The top US export to India in FY2024 was crude petroleum oil, worth $5bn. India may increase purchases from US, but only if it offers the lowest global prices.Indian students contribute significantly to US universities, and India buys military hardware from US. India remains a crucial counterweight to China in the Indo-Pacific.Both countries may discuss strengthening ties in technology, defence, energy, space, supply chains, and geopolitics. It’s time to focus on specific actions.For example, China controls over 80% of global solar cell production and 97% of polysilicon supply, leaving US and India dependent on imports. They could collaborate to set up large-scale solar cell manufacturing in India. While initially costly, this would help reduce reliance on China.High tariffs didn’t help America | While Trump has started another tariff war, US must recognise that it did not win the last one. The US-China trade war began in March 2018 when Trump imposed 25% tariffs on steel and 10% on aluminium, later expanding them to hundreds of Chinese goods.However, between 2017 and 2023, while US imports from China dropped by $81.56bn (from $519.52bn to $437.96bn), total US imports surged by $763.2bn to $3.04 trillion – a 31.5% increase.About 57% of this growth came from Mexico, Canada, and Asean countries, which benefited from zero tariffs under trade agreements like the US-Mexico-Canada Agreement and the US-Vietnam FTA. India’s exports to US also grew by $36.8bn during this period.This data shows that Trump’s tariffs did not boost US manufacturing. Instead, imports grew, with many Chinese goods still reaching US tariff-free through Mexico and Asean countries.Trump’s rise is fuelled by deep economic anxieties among Americans who feel globalisation left them behind. His promise to revive manufacturing and put “America First” secured him a second term.Trump has consistently criticised trade partners with surpluses against US, ignoring the fact that US can print dollars to sustain its deficits.US is India’s top trading partner, with merchandise exports of $77.5bn in FY2024. Total bilateral trade in merchandise and services exceeds $190bn. Many Indian products, such as textiles, garments, and leather, face 15-35% tariffs in US. If US imposes new tariffs, it will surely hurt Indian exports, but Indian countermeasures will hurt US in equal measure.But, tariffs on India and other countries look almost imminent, as Trump may prioritise appealing to US voters over assessing their actual benefits for America.The writer heads a research group focused on trade and technology