‘Its domestic market is a prize of its own’: Economist on why India’s unlikely to back down in the face of Trump’s 25% tariff threat

Despite Donald Trump’s pressure tactics to conclude a trade deal desirable for the US, opening up the Indian economy would not be easy, said an economist. She also said that this – Trump saying the US would impose 25 per cent tariffs on India starting August 1 – was something that was to be expected. 

Trinh Nguyen, a senior economist specialising in Emerging Asia at Natixis, said it is unlikely that India can negotiate a deal much lower than the current 25 per cent Trump has threatened. 

“Why is it not a surprise that India is not getting the deal that it is working hard on? First, let's look at the EU and Japan - they got smacked with a 15 per cent tariff and got reprieve for auto (and other sectors) but auto is key at 15 per cent. So 15 per cent is the best India can get. And it won't get it. Why? Well, it has to offer a lot to Trump to get that and it won't,” said the economist.

Nguyen said Trump desires India's help with a few agendas. “Ending that Ukraine War is one. And India is not interested in that. It's an emerging country that buys where it can cheapest. Russian oil is cheapest and so it buys from Russia. Trump wants to starve Russia of oil revenue. India doesn't want to not buy the cheapest oil possible,” she said, adding that Russia may be the West’s foe, but it is not India’s. 

If India bends to Trump’s pressure on Russian oil, then New Delhi will have to pay more for oil and on top of that pay Trump’s tariffs too, she highlighted.

The second thing is that Trump wants to boast that he opened the Indian market to the US. Nguyen said that India is opening up – as is evinced from the India-UK deal – but it is doing so cautiously and slowly. New Delhi is opening up sectors that it feels doesn’t need to be protected.

She said it is highly unlikely for India to give in to Trump’s demands and give up the auto sector. It is not worth giving up too much of the domestic market if New Delhi doesn’t export much to the US anyway, she said. “It can give a bit more than it gave to the UK but the UK deal is a benchmark that domestic auto markets remain protected,” said Nguyen. 

Now, when it comes to agriculture – the bone of contention – the US wants to export its key products like soybeans, corn etc to India but that’s not possible either. This has more political connotations than the other sectors. Opening up the agriculture sector would mean a blow to Indian farmers, who are a significant part of the voter base. 

India can, however, pivot from buying palm oil from Indonesia and agree to US oil. “But again, there is a reason they buy from Indonesia in the first place. Irrespective, on this particular issue, it's difficult. India can offer a big investment or purchase package. But I don't think it's in its DNA to do that. And so the granular detail is where we get stuck at,” she said. 

“But India is not Vietnam. It has a huge domestic market that is a prize on its own. But giving that access has costs and what Trump is asking is forcing change to a country that traditionally had a low political risk appetite. That has risen but not enough. So what now? I think this 25 per cent and the Russian threat isn't going to stick. Or maybe it will. Either way, there is some room to push this downward. And there is that question: is it worth it if at best India can get is somewhere closer to the Indonesia or Philippines rate at 19 per cent?” she asked.

Meanwhile, officials told Business Today TV that India will not compromise on the interests of its farmers and remains committed to protecting its agriculture and dairy sectors. “The U.S. can’t expect India to open its agriculture and dairy markets under pressure. Our farmers' interests are paramount. Just like we didn’t concede in the India-UK FTA talks, we won’t do it here either,” a senior government official said.