'India not a tribute country': Economist warns Trump tariff will damage small US businesses more

Neelkanth Mishra, chief economist at Axis Bank and a member of the Prime Minister’s Economic Advisory Council, has said the 50 per cent tariff imposed by the United States on Indian goods is unlikely to remain in place for long. 

"I don't think the 50% tariffs will last very long. I think the US also is now beginning to realise that they can keep it on because just like they've put those fentanyl tariffs on Canada and Mexico and China. They can keep it on for a while. But it's unlikely that the US-India relationship can be viewed purely through the prism of goods trade,” Mishra said in a podcast conversation with Sonia Shenoy.

He argued that goods trade formed the "thinnest sliver" of India–US ties, pointing to defence collaboration, technology cooperation, and services trade as more significant areas. "To actually create enemies and a lot of drama around it I think the US has made a strategic mistake," he said.

Mishra said Washington's recent rhetoric, including comments from Trump trade adviser Peter Navarro, reflected an attempt to pressure India. "President Trump has tried to reach out to the PM several times and there's been no response. So the fact that you see his press secretary abusing India and Peter Navarro writing 100-word opinion pieces. It's clearly a (design) that - 'let's insult India so much that they will come back to the negotiating table'. That's wrong behavior," he said.

He described India, China, and Brazil as nations that would not bow to coercion. "India, China, Brazil, these are not tribute countries. We don't have US armed bases. So we are not going to sort of listen to...and it's not about ego. It is about incentive structures. So in some of these cultures, face is a very important thing," Mishra said.

Mishra also pointed to Trump's negotiating style, recounting reports of how Vietnam agreed to a 19 per cent tariff after Trump suddenly raised it from 11 per cent just before signing. "He has this habit of doing these things which perhaps the feedback now should go is that look if you don't change that behavior you're going to create more damage for yourself," he said.

The economist noted that inflammatory language by US leaders had historically damaged ties, citing the use of insults against Indian leaders by Nixon and Johnson. "This kind of language being used vitiates the atmosphere, and it makes it harder to restart the conversation," Mishra said.

Despite the disruption, he predicted that the additional 25 per cent duty would eventually be rolled back. "I'm reasonably sure that the 25% extra duty is going to go away because whenever other parts of the negotiation have to happen, it's with what face will they say that look - it sounds ridiculous. Even Fox News is saying that," he said.

Mishra assessed that the burden of tariffs would largely fall on American businesses and consumers. He pointed out that more than 60 per cent of US imports are intermediate or capital goods, with another 17–18 per cent being mixed-use items such as cars and computers. He said these costs would appear in margins before filtering into prices.

He noted that small US businesses were particularly vulnerable. Citing a report from the US Business Council, Mishra said companies with fewer than 500 employees would face a $202 billion increase in tariff burden.

"If you are a large retailer, you can arm-twist the Indian supplier or the Chinese supplier. The company that has like 500 people, what are they going to arm-twist? So they will take the cost and then pass it along to the consumer," he said.

The economist estimated that Indian exporters had been paying about $2.3 billion in customs duties before the tariff hikes, rising to $7–8 billion between April and August, and could now face $18 billion at the 25 per cent level. However, he said the rupee's depreciation against the dollar had cushioned some of the impact. 

"The actual economic impact in India is going to be relatively minor. There are pockets that will be very badly hurt. They need to show their entrepreneurial instincts and try to find ways to export to different markets or even to export to the US, using say transshipment and under-invoicing," he said.