India's Options Against US' Tariff Bullying

We are still digesting the US' punitive 25% tariff slapped on India for continuing to purchase Russian crude oil. The new tariff takes the impost to a ridiculous 50%.

- Gurbir Singh

The timing and ferocity of the second tranche of punitive tariffs has taken the government and its pundits by surprise. But, equally, the government's push back to what it has dubbed "unfair, unjustified and unreasonable", has been startlingly strong.

A Reuters report on Friday said New Delhi has put on hold its plans to procure new US weapons and aircraft; and Defense Minister Rajnath Singh, who was to go to Washington to make these announcements on weapons purchase, has put off his trip. There is also no indication that Indian oil companies have been asked to go slow on Russian oil purchases.

This has effectively aborted the ongoing US-India trade negotiations. President Donald Trump has indicated on Thursday he is not interested in reopening talks. This has dashed hopes that there could be an interim deal before the punitive tariffs kick in on 27 August.

How does India deal with what could be a catastrophic situation? Is there a way out?

A painful cut

The Indian economy is inextricably linked to the US markets. The US is India's largest trading partner to whom we export $87 billion of goods. The US accounts for 20% of our exports, and contributes about 2.2% to our GDP. An additional 25% tariff could cut GDP by 0.2-0.4%, risking growth slipping below 6% this year.

For large swathes of the industry, it is curtains. Effectively, we are facing a US trade embargo. The gems and jewelry industry, which exports 45% of its polished gems and other products to the US, has suspended further shipments. The textile and apparels industry too has stopped exports having been edged out by Bangladesh and Vietnam, who face a much lower tariff of 20%.