Tariff Tensions Rise Ahead of U.S. Deadline

MUMBAI: A storm is brewing as Indian exports to the United States face the threat of some of the world’s steepest tariffs, with a pivotal deadline looming this week. President Trump has drawn a line in the sand, threatening to impose 50% duties on New Delhi in response to its ongoing purchases of Russian oil—a move Washington claims funds the conflict in Ukraine.

This tariff offensive has sent shockwaves through U.S.-India relations, prompting New Delhi to seek warmer ties with Beijing while posing serious challenges for the world’s fifth-largest economy.

Economic Impact: The Stakes Are High

The heightened tariffs, set to potentially kick in on Wednesday (August 27), could spell disaster for Indian exporters. As the U.S. was India’s primary export market in 2024, with shipments worth a staggering $87.3 billion, analysts are sounding the alarm.

Nomura’s analysts warn that a 50% tariff would equate to a trade embargo, devastating smaller companies with tighter profit margins and lower value products. Elara Securities’ Garima Kapoor echoed these sentiments, stating that no Indian goods could maintain a competitive edge under such harsh trade restrictions.

Economists predict that these tariffs could slice between 70 to 100 basis points off India's GDP growth this fiscal year, potentially dragging it below 6%—the slowest pace since the pandemic began. Export sectors like textiles, seafood, and jewelry are already witnessing cancelled orders from the U.S., raising fears of significant job losses.

A Silver Lining? Some Exemptions Stay

In a small stroke of luck, sectors like pharmaceuticals and electronics, which include iPhones manufactured in India, are currently exempted from these tariffs. S&P has estimated that exports affected by the tariffs could account for about 1.2% of India's GDP, labeling it as a "one-time shock" that won’t derail the nation's long-term growth trajectory.

Bitter Back-and-Forth: Will Either Side Concede?

As tensions escalate, there’s no indication that either the U.S. or India will back down. Following a meeting between the U.S. and Russian presidents in Alaska, Washington intensified its rhetoric against India. White House trade adviser Peter Navarro blasted India for turning Russian oil into high-value exports, accusing its refiners of profit-seeking.

In defense, Indian Foreign Minister Subrahmanyam Jaishankar contended that India’s oil purchases actually stabilized global markets and were conducted with Washington's implicit approval in 2022. He clarified that countries like the U.S. and those in Europe continue to purchase refined oil and other products from India.

Navigating a Difficult Path Forward

Experts indicate that India is in a precarious bind. Nandan Unnikrishnan from the Observer Research Foundation noted that the country requires "significant ingenuity and flexibility" to maneuver through what appears to be a no-win scenario, with Washington seeing India as the weakest link in the Russia-Ukraine geopolitical landscape.

A Strategic Response: Strengthening Alliances

In light of the impending tariffs, New Delhi is reportedly aiming to bolster its economy and enhance ties with both BRICS partners and regional rivals. Jaishankar's recent trip to Moscow was aimed at solidifying bilateral trade relations, while Prime Minister Modi prepares for his first trip to China in seven years to mend frayed ties.

Domestically, the Indian government is reportedly crafting a $2.8 billion package to support exporters, alongside a six-year initiative to alleviate liquidity issues. Modi has even floated ideas of tax cuts on essential goods to stimulate spending and provide a cushion for the economy.

Trade Talks Stumble Amid Tariff Threats

Negotiations for a trade agreement between the two nations have hit roadblocks, particularly surrounding agriculture and dairy. While Trump seeks greater U.S. access, Modi remains committed to safeguarding India’s farmers, a critical voter demographic. Speculation arose after U.S. negotiators canceled a planned visit to India, hinting that discussions may have faltered.

However, Jaishankar remained hopeful, stating that talks are still ongoing and that communication remains open.