Blowing hot and cold, President Donald Trump said U.S. and India were still negotiating a deal hours after threatening to impose a 25% tariff on imports from New Delhi plus an unspecified penalty for ties with Russia.
The shifting stand, analysts suggested, left wiggle room for striking a trade deal before the August 1 deadline or even later and avoid what has threatened to cause a serious rift between the two strategic partners.
“They have one of the highest tariffs in the world now, they’re willing to cut it very substantially,” Trump told reporters in the White House hours after blasting India in a Truth Social post. “We’re talking to India now – we’ll see what happens … You’ll know by the end of this week.”
“I don’t care what India does with Russia,” Trump had posted hours earlier. “They can take their dead economies down together for all I care. We have done very little business with India, their tariffs are too high, among the highest in the world.”
READ: Trump to impose 25% tariffs plus penalty on India despite trade deal
Trump’s verbal assault of India prompted defense analyst Derek J. Grossman, senior fellow at Asia Pacific Foundation, to call it the “worst day in the U.S.-India strategic partnership since New Delhi tested nuclear weapons in May 1998.”
However, Michael Kugelman, Foreign Policy writer and South Asia expert, felt “certainly, the U.S. and India could still strike a deal. It’s not August 1 yet. Even a later deal is possible.”
“But India has already made concessions (on tariffs but also on broader trade and immigration issues), and it’s hard to imagine it can afford politically to make any more,” he noted.
If worse comes to worst, the 25% figure would single out India more severely than other major trading partners and cause a serious rift with a strategic partner seen as a counterbalance to China by both Republicans and Democrats.
The White House had previously warned India about its high average applied tariffs — nearly 39% on agricultural products — with rates climbing to 45% on vegetable oils and around 50% on apples and corn.
“While India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high,” Trump wrote in the Truth Social post.
“They have always bought a vast majority of their military equipment from Russia, and are Russia’s largest buyer of ENERGY, along with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE — ALL THINGS NOT GOOD!”
READ: US-India trade deal to be struggling under looming tariffs deadline
In response to his Truth Social post, the Indian government said it was studying the implications of Trump’s announcements and remained dedicated to securing a fair trade deal.
“India and the U.S. have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective,” it said.
White House economic adviser Kevin Hassett told Reuters Trump has been frustrated with the progress of trade talks with India and believed the 25% tariff announcement would help the situation.
“This is a major setback for Indian exporters, especially in sectors like textiles, footwear, and furniture, as the 25% tariff will render them uncompetitive against rivals from Vietnam and China,” said S.C. Ralhan, president of the Federation of Indian Export Organizations.
Since India’s short but deadly conflict with Pakistan, New Delhi has been unhappy about Trump’s closeness with Islamabad and has protested, which has cast a shadow over trade talks, Reuters noted.
“Politically, the relationship is in its toughest spot since the mid-1990s,” said Ashok Malik, partner at advisory firm The Asia Group. “Trust has diminished. President Trump’s messaging has damaged many years of careful, bipartisan nurturing of the U.S.-India partnership in both capitals.”
A 25% tariff plus additional penalties will leave India worse off relative to other Asian economies like Vietnam and China, “the main countries we are competing against for investment and industrialization”, Rahul Ahluwalia of the Foundation for Economic Development think-tank told the BBC.
“If the tariff is sustained, this move may directly affect key sectors such as marine products, pharmaceuticals, textiles, leather and automobiles, where bilateral trade has been especially robust,” Agneshwar Sen, trade policy expert at EY India, was quoted as saying.
READ: US ‘very close’ to finalize trade deal with India
Trump’s announcement evoked across-the-board reactions of disappointment and concern from economists, exporters and industry leaders in India.
“While this move is unfortunate and will have a clear bearing on our exports, we hope that this imposition of higher tariffs will be a short-term phenomenon and that a permanent trade deal between the two sides will be finalized soon,” Harsha Vardhan Agarwal, president of industry body FICCI, told BBC.
Dr Ajay Sahai, who heads a federation of Indian exporting organizations, said the tariffs will lead to fresh price negotiations between US buyers and Indian sellers to decide how much of the 25% hike exporters can absorb.
Trump’s hyphenation of the trade deal with India’s economic relationship with Russia further “complicates the situation,” Mark Linscott of the U.S.-India Strategic Partnership Forum and a former U.S. government trade representative, told BBC. “They add a whole new dimension to the negotiations, and it’s not clear how this set of issues can be added to a trade package.”
Linscott said despite the setbacks, both India and the U.S. have substantial shared interests in restarting negotiations and concluding an interim deal. U.S. is India’s largest foreign export market with bilateral trade amounting to $190 billion and a stated goal to take it to $500 billion in the years to come.
But despite the growing tensions, negotiations between India and the U.S. are likely to continue through August, with a team from the U.S. expected in India later next month to thrash out a comprehensive trade agreement.