US Tariffs: Just a Stumble

They present near-term growth challenges, but India needs to play the long game

- Sonal Varma

The announcement of 25 per cent tariffs by the United States on imports from India, coupled with an unspecified penalty for Russian energy and defence purchases, marks a disappointing turn in India-US trade relations and appears particularly harsh, given that India was among the first to engage the US in negotiations. India faces higher tariffs than Vietnam (20 per cent), Indonesia (19 per cent) and other Asian competitors, despite being at a more advanced stage of negotiations. This disparity raises questions over both the negotiation strategy and the broader geopolitical dynamics at play.

However, viewing this setback through a broader lens, the announced tariffs may well prove temporary, serving as negotiating leverage rather than a permanent arrangement. The scheduled visit by the US trade delegation to India at the end of August suggests dialogue channels remain open and productive, with the possibility of lowering tariffs, although US trade deals with other countries suggest the best-case outcome would still be tariffs in the 15 to 20 per cent range.

The inability to negotiate better tariff terms will lead to a short-term economic cost, but this needs to be assessed against the longer-term challenges that could have arisen by agreeing to all of US demands, such as the loss of policy flexibility, precedent-setting concessions and domestic political consequences. While other nations secured quick, often verbal deals, India has pursued a more thorough process aimed at a comprehensive trade agreement.