Trump\s tariffs could deal a blow to India\s growth and exports

US is Indias largest foreign export market

In a press statement, India‘s commerce ministry said it is studying the implications of Trump’s announcement.

India has reiterated that while the government remains committed to a mutually beneficial bilateral trade agreement, it attached the utmost importance to protecting and promoting the welfare of our farmers, entrepreneurs, and MSMEs [micro, small and medium enterprises], - an indication that areas like agriculture, dairy and other politically sensitive sectors have become key sticking points that derailed the negotiations.

Indias opposition Congress party mounted a scathing attack on the government following the announcement.

In a post on X, the Congress said that while Prime Minister Narendra Modi campaigned for Trump - referring to a 2019 rally Modi held in the US - and hugged him like a long-lost brother, in return Trump goes on to impose such harsh tariff on India. It is a catastrophic failure of foreign policy.

Trump‘s hyphenation of the trade deal with India’s economic relationship with Russia further complicates the situation, said Mark Linscott of the US India Strategic Partnership Forum and a former US government trade representative.

They add a whole new dimension to the negotiations, and its not clear how this set of issues can be added to a trade package.

Since the war in Ukraine began, India has resolutely defended its historic ties with Russia and also its oil purchases, saying that a country reliant on energy imports will buy oil at the best price possible to ensure that millions of poor Indians do not suffer. Indias dependence on Russian arms has also been gradually coming down.

Mr Linscott said despite the setbacks, both India and the US have substantial shared interests in restarting negotiations and concluding an interim deal. US is Indias largest foreign export market with bilateral trade amounting to $190bn and a stated goal to take it to $500bn in the years to come.

The President insists on putting his stamp on every deal. For that to happen with India, I think it required Prime Minister Modi to reach out to negotiate the last elements directly with the President, including any headline commitments on purchases of energy and military equipment and investments in the United States. For whatever reason, that did not happen, he added.

While Trump has called India a good friend, he has also repeatedly taken aim at India‘s high tariffs. On Thursday morning, in a particularly acerbic post on his Truth Social platform, he said: I don’t care what India does with Russia. 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.

But despite the growing tensions, negotiations between India and the US are likely to continue through August, with a team from the US expected in India later next month to thrash out a comprehensive trade agreement.

The hope among many is that tariffs will get negotiated lower and the higher reciprocal tariff rate of 25% may be temporary, till a detailed trade deal with the US is secured. The two sides have set a fall deadline to conclude the deal.

But the best-case outcome would still be tariffs in the 15-20% range, which is disappointing, considering Indias more advanced stage of negotiations, said Nomura.

While the impact could be contained, given that the Indian economy is relatively more domestically oriented and less reliant on goods trade than other Asian peers, Nomura believes Trump‘s decision could increase the likelihood of monetary policy easing and prompt India’s central bank to make deeper rate cuts to protect growth.