In recent developments, former U.S. President Donald Trump has once again ignited trade tensions with India, vowing to increase tariffs on Indian goods. This announcement follows Trump's earlier declaration of a 25% tariff on Indian imports, coupled with an additional, unspecified penalty. The justification for these measures, according to Trump, lies in India's continued purchase and resale of Russian oil, which he claims disregards the ongoing conflict in Ukraine.
Trump voiced his concerns via his social media platform, Truth Social, stating that India is "buying massive amounts of Russian oil" and then "selling it on the open market for big profits". He further added, "They don't care how many people in Ukraine are being killed by the Russian war machine. Because of this, I will be substantially raising the Tariff paid by India to the USA". However, he did not specify the exact tariff level he intends to impose.
The Indian government has responded with a firm stance, asserting that it will take all necessary steps to protect its national interests. The Ministry of External Affairs issued a statement expressing its view that India has been unfairly targeted by the United States and the European Union regarding its energy trade with Russia. New Delhi has emphasized that its energy purchases are driven by national interests and market forces. India has also pointed out the "double standards" of the U.S. and EU, highlighting that Western nations trade far more with Moscow.
India's Commerce Minister Piyush Goyal stated that national interests would not be compromised in any trade deal. He also highlighted India's rapid economic growth and its commitment to self-sufficiency.
These recent tariff threats come against a backdrop of already strained trade relations between the two countries. Trump has consistently criticized India's tariff and non-tariff barriers, as well as its continued energy and defense dealings with Russia. India, on the other hand, has defended its energy security strategy, with Russia supplying a significant portion of its oil imports. Tensions further escalated when Trump claimed credit for the India-Pakistan ceasefire, a claim that India firmly rejected.
The imposition of higher tariffs is expected to have a significant impact on Indian exports to the U.S. Key sectors such as garments, precious stones, auto parts, leather goods, and potentially electronics could face competitiveness challenges. While U.S. importers will bear the direct cost of the new tariffs, Indian goods will become less competitive and more expensive in the U.S. market. On a macroeconomic level, the tariffs are expected to reduce India's GDP growth by 0.2%, lowering forecasts from 6.6% to 6.4%, according to Bank of Baroda research.
The Indian government is exploring measures to support exporters, including encouraging brand building and providing financial assistance. The commerce and industry ministry has requested sectors like marine food products to propose potential schemes linked to progressive employment. The government is also exploring employment-linked programs and fixed-price intermediate products to support exporters.
Despite these challenges, both India and the U.S. have expressed their commitment to finalizing a broader trade agreement. However, progress has been complicated by Trump's decision to link India's Russia engagements to trade negotiations. It remains to be seen whether the two countries can bridge their differences and forge a mutually beneficial trade deal in the face of these growing tensions.
