Donald Trump’s patience has finally worn out. Frustrated by the leaden-footed progress in the talks between the United States of America and Indian trade negotiators to resolve the sticking points in a trade deal that aims to tear down India’s market access barriers to US goods and services, the mercurial US president announced a 25% tariff on imports from India. This is a tick down from the 26% reciprocal tariff that he had threatened in April to impose on India before deciding to give his trade negotiators a 90-day deadline to sew up trade deals to end the skew in Washington’s trade balance with its major trading partners.
Data show the US racked up a trade deficit of $45.7 billion in goods trade with India in calendar 2024. This has been the real red rag for Mr Trump. His biggest grouse is that India’s average applied tariff is 17% — which he characterised as the highest among the world’s largest economies — while the US’s average applied tariff is 3.3%, thereby perpetuating a tilt that undermines his MAGA ambitions. Significantly, the US has been able to eke out a small trade surplus vis-à-vis India in the realm of services worth $102 million in 2024 from a deficit of $4.55 billion in 2022. However, the bigger worry is Mr Trump’s threat to slap an unspecified penalty on India for its purchase of crude oil and military equipment from sanctions-hit Russia.
None of the large trading partners has been able to stand up to US bullying. Japan was arm-twisted into agreeing to invest $550 million in the US. The European Union will have to purchase $750 billion worth of US gas and oil and make $600 billion new investments in the US by 2028. Countries like Japan and Indonesia have had to commit to buy hundreds of Boeing aircraft, making the aircraft maker one of the biggest beneficiaries of the flurry of trade deals. India, which hoped it might profit from Narendra Modi’s apparent closeness with Mr Trump, has been slapped with the highest levy in South Asia: Pakistani goods will attract a 19% tariff rate while Bangladesh and Sri Lanka have got off lightly with a 20% impost.
It will be hard for India to hold out for long. Mr Modi’s government has come out with a restrained response but, significantly, drew attention to the manner in which it sandbagged its interests in the recent trade deal with the United Kingdom. One of the key elements in that deal is that it permits free movement of professionals and business persons. There is a subtle hint here: if Mr Trump tries to force Indian companies to invest in America, the US will be asked to allow free mobility of people — one of the many fraught issues that the trade negotiators will grapple with in the weeks ahead. Mr Trump’s fickleness on tariffs is not going to end anytime soon: Canada was stunned by a sudden executive order that raised the tariff on its goods from 25% to 35%. It is this sort of whimsicality that puts nations and markets on edge.