India Should Not Turn Trump’s Trade Battle Into a Political Cause

This article was originally published in 360info under Creative Commons 4.0 International. Read the original article.

By Manoj Pant and M. Rahul

As far as US President Donald Trump is concerned, all his attempts at tariff diplomacy have been stymied by the local courts. Consequently, he has periodically used Section 301 (unfair trade practices) of the Trade Act of 1974 and Section 232 (national security) of the Trade Expansion Act of 1962 to levy tariffs selectively.

Forced by court actions, Trump has taken recourse to Section 338, a 1930s instrument allowing blanket tariff protection against countries whose actions threaten US trade. But now he needs no such subterfuge. Congress has voted to give him full authority with the Lindsey O. Graham Sanctioning Russia Act of 2026, permitting Trump to impose 100 percent tariff action against countries importing Russian oil.

The general feeling in the media, therefore, seems to be that he will raise tariffs on India to 100 percent. However, this is not inevitable. Even if it happens, there will be some time lag, as in the case of pharmaceuticals, before implementation, giving India time to take corrective action.

More importantly, it has been argued that with the end of the Cold War in the 1990s, the US faced a new “cold war” challenge: China.

However, the challenge was economic, not political. Despite the show of bravado, US tariff action on the basis of the new Act is already on hold, while talks with President Xi Jin Ping were on.

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What is known is that China has reduced its trade dependence on the US market over the last decade or so, and any US action would hurt American consumers more than the Chinese. Trump knows this, given looming US inflation and legislative elections in November, where inflation is the main focus.

Both Trump and Xi also know that given their vast reliance on each other, a trade war would be mutually destructive. With the conclusion of the US-China trade agreement, the terms are broadly on expected lines: US-China to cut tariffs on about $60 billion in trade, with tariff cuts on US goods like corn, wheat, frozen meat (but not soya), while US cuts some duties on small appliances, toys, holiday decorations, and children’s car seats.

More important was the decision to cooperate on the risks of AI for both countries, with some future dialogue on “super intelligence”. So, no fireworks and no “trade Armageddon”, as Trump himself boasted at one point.

In the final analysis, Trump is a businessman first and politician later. Xi has already diverted China’s exports to the US to other countries, and Trump has achieved a reduction in his trade deficit with China from about $297 billion in 2024 to $200 billion in 2025. So why a mutually destructive war?

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How should India respond, given that it is a major importer of Russian oil? Should India make some concessions in the ongoing trade discussions?

There has been speculation that the recent changes in the UPI system were intended to mollify the US. Even if so, this is unlikely to work, as it does not address the larger issue of Russian sanctions, which is what the Congress legislation is all about. The UPI issue is probably more closely related to the hidden consumer subsidy in place since UPI’s early days, which has now outlived its utility in incentivising people to adopt digital payment channels. That is a separate issue requiring a full article.

But what about the Indo-US trade agreement?

Here again, the government seems to have jumped the gun, if media reports are to be believed, by arguing that a 100 percent duty would harm bilateral political relations.

The US action against Canada, Brazil and Mexico have shown that Trump could not care less.

China is an economic worry: a failed agreement would have thrown domestic US inflation into greater disarray, apart from being a setback for the IT ecosystem. Hence, no action was likely against China, the most important buyer of Russian oil. International politics is not on Trump’s radar.

Yet Indian spokesmen continue to highlight what the use of this tariff implies for political relations. But for Trump, the issue is economic, not political. Why are we determined to make it political?

On the other hand, it pays India to stay low-key on this issue because of its services trade with the US. India’s total goods trade with the US is about $140 billion, with a $33.9 billion surplus. Yet India’s trade with its other major partners—the EU, UAE and China—is about $390 billion. India must, therefore, slowly shift its trade policy in those directions.

There is some evidence that this is already happening. As far as commodity trade is concerned, the US is not the only kid on the block.

The recent focus on FTAs — with the UK, Australia, Oman and European Free Trade Association (EFTA), and the deal concluded with the EU — is one way trade policy must change, and seems to be changing.

While FTAs per se do not create trade—there is plenty of empirical evidence on this—they allow member countries to move towards higher levels of cooperation, including foreign investment and regulatory systems.

The focus on FTAs is, therefore, an indication of a clear change in global economic and political engagement. This is clearly visible in the recent FTAs that India has been negotiating. India-EFTA Trade and Economic Partnership Agreement (TEPA), which was signed on 10 March 2024 in New Delhi and came into force on 1 October 2025, exemplifies this. The agreement includes investment commitments by the EFTA members of $100 billion over 15 years, tied to tariff concessions.

The recent FTAs have also focused on easing the market access for India’s services sector. This includes more favourable regulations for mobility of Indian service providers in sectors including, information technology and related services, financial services, healthcare, education, and consultancy services among others. Similarly, services related commitments are also part of India-EFTA TEPA as well as the India-EU FTA concluded in January, this year.

More broadly, trade in services has been growing at about 6.22 percent in 2025-26 and 13.36 percent in 2024-25. The US is the dominant source of revenues here, and a $200 billion surplus is what keeps the overall current account deficit (CAD) to a manageable 0.6 percent of GDP.

Why would India want to endanger this?

It is clear that global focus today is on economics, not politics. This delicately balanced apple cart should not be overturned.

[Wc/GS]

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