Grim Manifestations

All over the world, especially many people in India felt happy and reassured after Donald Trump won his second term as US President and took office in January 2025. A large number of people felt that the Democrats had been patronising destabilising forces like the so-called ‘Deep State’, which, under the guidance of the CIA, actively promotes anti-India forces, supports Pakistan, and encourages disruption in countries not following American dictates. Many people and media, especially, blamed the Deep State for removing the Sheikh Hasina-led Awami League government in Dhaka when she refused to allow a US base on St. Martin's Island, and for trying to create disruption during the 2024 General Elections in India.

The narrative may or may not be true, but if there’s an iota of truth in it, then it is not a party-based issue in America but rather a well-oiled strategy of the American system to act as a self-appointed policeman of the world. Thus, it is the US State Department’s avowed policy to rule the world through proxy regimes and upset those who pursue an independent line. Because of this, the United Nations has also become a futile body, unable to achieve its lofty objectives.

Most Indian writers and media were hopeful that the personal chemistry between Prime Minister Narendra Modi and President Trump, developed during his first term, would help forge better relations between the two countries. But Trump is Trump—once in the Chair, he felt he no longer needed to placate immigrant voters like he did when he organised the ‘Howdy Modi’ community summit in 2019 at the NRG Stadium in Houston, Texas, on September 22, 2019. Now, he wants to show the American people that his policy is ‘America First’ and trade first. He wants to be remembered as the best President of America and is also hoping to win the Nobel Prize for Peace.

He believes world leaders should follow his dictates, and the first sign was his snub to the President of Ukraine in full view of the media, ultimately forcing him after a few days to sign the arms deal in return for control over Ukraine’s minerals. After taking office, he grew more and more arrogant and developed a fad for replacing diplomacy with trade. He started threatening India and terming it the ‘Duty King’ in trade after being snubbed for his vacuous, repeated claims of brokering peace between India and Pakistan during Operation Sindoor, launched by India in retaliation for the Pahalgam killing by terrorists on April 22, 2025.

Ultimately, in addition to the 25 per cent reciprocal tariff, he announced a 25 per cent additional duty on Indian imports, blaming India for its higher duties, the 45-billion-dollar trade deficit, and also imposing a fine for importing Russian oil. Trump did this when free trade talks between the two countries were nearing completion. It seems he got annoyed that India steadfastly refused to open its agriculture and dairy sectors and other areas impinging on national interests, especially the interests of 8 crore dairy farmers. India had to protect its farmers’ interests, as US agriculture is highly subsidised. No country will accept this kind of fiat—it would be political and economic hara-kiri for any party ruling at the Centre.

Now, let us discuss its impact on India as well as America.

Indian people are not amused by Trump’s action, but the mandarins in the Pentagon and White House must be scratching their heads in disbelief that the fine geo-strategic relations they had built with India so assiduously over the last 15 years are going to be upset to a large extent, if not fully. Mr. Donald Trump needs to introspect and be advised by the saner elements in his administration that he should go for soul-searching and ‘first catch his hare’ rather than blaming India and its economy as dead. He should look into his own collar first.

This ill-conceived decision could have several unintended consequences that may undermine America's long-term interests and close friendship with India—a major emerging power and economy. While the policy aims to address trade deficits and India’s ties with Russia, it risks backfiring in economic, geopolitical, and strategic ways.

It is, however, also a fact that the US is India’s largest export market, with USD 87.4 billion (according to US sources, though Indian sources put it at USD 77.5 billion) in goods exports in 2024—constituting 17 per cent of India’s total exports. Key sectors like pharmaceuticals (USD 9 billion), textiles (USD 8 billion), gems and jewellery (USD 11 billion), and IT hardware (USD 4 billion) face higher costs, potentially reducing competitiveness. An additional 25 per cent tariff could shrink India’s US exports by 10–15 per cent, with estimates suggesting an USD 8–12 billion annual loss, based on flexible trade models.

However, being an emerging economy with a large market, India will survive this US action—just as it did the US sanctions after the atomic explosion in 1999. India supplies 40 per cent of US generic drugs. Higher tariffs could raise costs for US consumers, and the brand-conscious consumers and doctors will, in any case, still prefer to buy Indian medicines at higher costs, though some loss of market share to competitors like China or Mexico may occur. There will be a huge supply chain disruption causing shortages of pharmaceuticals and other components, particularly in labour-intensive sectors where India has a big advantage.

Further, JP Morgan has estimated that the tariff could increase US inflation by 0.02 per cent and reduce global GDP to 1.4 per cent. The Indian pharmaceutical sector is robust and would diversify to other countries, while US citizens will have to face higher prices for medicines. Similarly, the gems and jewellery brands will not be much affected, as we do not have much competition globally.

The US administration must also consider other factors beyond trade when evaluating India’s actual contribution to the US economy. They must not forget that more than 3 lakh Indian students—constituting 18 per cent of all foreign students admitted annually to US universities—are enriching the US economy by paying USD 24 billion as tuition fees, accommodation, and other living expenses. American consulting firms are also benefiting, with estimates over USD 10–12 billion every year. Thus, if we calculate the flow of money to the US, the so-called trade surplus of USD 44 billion in India’s favour is nowhere close to reality.

In today’s globalised world and international relations, this will be a big price the American administration will have to pay by antagonising India—a crucial ally in the Asia-Pacific region to counter China with shared interests. The advisors of Trump must advise him to realise that the Quad will be dead if India walks out and moves closer to Russia and BRICS nations.

Now, Trump and his friends in Europe must also realise that their hypocrisy on Russian oil and Indian jet fuel is not a secret. In 2024, the European Union had bilateral trade with Russia to the tune of EUR 67 billion in goods and another EUR 17 billion in services in 2023. India’s import of oil from Russia is a compulsion—but what is the compulsion for Trump and his allies? Trump has been clever enough to exempt jet fuel from India from this extra duty.

Let us hope good sense prevails and that this announcement is merely a last-minute pressure tactic for bargaining in the trade talks. Let us hope diplomacy will be the winner—not knee-jerk hullabaloo.

The writer is former IFS officer and Chairman of Centre for resource Management and Environment. Views expressed are personal