Editor’s Note
This analysis highlights the significant vulnerability of India’s economy to U.S. trade policy. With the U.S. as its largest export partner, proposed tariff hikes could directly shave GDP growth, underscoring the high stakes for key industries and national economic momentum.
The Indian economy is inextricably linked to the US markets. The U.S. is India’s largest trading partner to whom India exports $87 billion of goods. The U.S. accounts for 20% of India’s exports, and contributes about 2.2% to its gross domestic product (GDP). An additional 25% tariff could cut GDP by 0.2–0.4%, risking growth slipping below 6% this year.
For large swathes of the industry, it is curtains. Effectively, India is facing a US trade embargo. The gems and jewelry industry, which exports 45% of its polished gems and other products to the U.S., has suspended further shipments. The textile and apparels industry too has stopped exports having been edged out by Bangladesh and Vietnam, who face a much lower tariff of 20%.
The deal breaker seems to be US’ insistence on access to India’s agricultural and dairy markets. And they want to flood us with genetically modified corn and wheat. It is a red line the Modi government has refused to cross fearing massive farmer backlash. And Trump has decided India needs to be made an example of. He wants to send a message to the rest of the world.
India is in a spot. How does it meet this new round of US bullying? As noted earlier, the government has registered its discontent by suspending its purchases of U.S. armaments.
However, there are indications that India’s foreign policy might see a more permanent shift away from the ‘soft’ middle-of-the-road line with a pro-US tilt. Prime Minister Modi is now hoping to heal relations with President Xi Jinping and has scheduled a visit to Tianjin, China, to attend the Shanghai Cooperation Organization (SCO) summit at the end of August. National Security Advisor Ajit Doval has simultaneously made an ‘air dash’ to Moscow and is working on a Vladimir Putin visit to New Delhi in the near future.
There are a few other steps India can take to return fire like imposing retaliatory tariffs on US goods entering India. However, in the long-term it is ‘multilateralism’ and building alternative trade partnerships that India must now pursue. Over time, India has given up its leadership position in the region and the developing world region. The South Asian Association for Regional Cooperation (SAARC) is in tatters. India has friction with all its local neighbours — Bangladesh, Nepal, Sri Lanka, Pakistan and even the Maldives.
On the international stage, India has taken an ambivalent stand on significant issues like the Ukraine war and the Gaza conflict. This has considerably dented its standing and credibility in the comity of nations.
This is a far cry from the Non-Aligned Movement (NAM) founded at the Bandung Conference in 1955. Seeking to unite the newly independent, developing countries as a ‘third force’ in a bi-polar world, Jawaharlal Nehru, Gamal Abdel Nasser of Egypt and Marshal Josip Tito of Yugoslavia and others advocated economic cooperation among the Global South to beat the domination of the Super Powers.
Perhaps it is high time that the NAM spirit is revived. The BRICS alliance is one such counter magnet that can take on US’ domination. It originally comprised of Brazil, Russia, India, China, and South Africa, but now includes many others. Its objects are to create a more multi-polar, inclusive global order through economic cooperation.