Opinion Trump’s tariffs are a violation – and a lesson for India

From Trump’s press statements, it appears that India offered zero or near-zero duty tariffs on a wide range of goods, which included not only almost all industrial products but some agricultural products as well. It needs to be borne in mind that in global trade, the shares of industrial products vis-à-vis agricultural products are roughly 90:10. Thus, by all accounts, India offered a very attractive deal to the US.

As far as its “red lines” are concerned, Delhi made it clear from the start that it would not be able to negotiate on the access to genetically modified food (GMO), soya, maize and some other cereals and dairy products, because of its serious concerns relating to its vast numbers of small and marginal agriculturists and dairy farmers, their livelihoods and food security.

A few other points have a bearing on this subject. First, the US’s focus has moved on from GMOs and other agricultural products to the purchase of Russian oil. It has not imposed tariffs on the EU and China, the two largest buyers of energy from Russia. Even if India had stopped the purchase of Russian oil, the goalposts could have easily shifted to stopping purchases of Russian defence equipment, walking out of BRICS and not trading in the currencies of its other bilateral partners.

Second, India is reported to have offered to buy more energy from the US to reduce the bilateral trade deficit, which was a major Trump concern. Third, in a bilateral trade agreement, there has to be mutual benefit, and India is understood to have sought a reduction of US tariffs on certain products of its interest. Fourth, other potential FTA partners like the EU would also have sought similar concessions. Thus, India could not have gone overboard in its offers without factoring in medium-to-long-term consequences.

It has been estimated that 55 per cent of the $89-billion goods exports to the US will be hit by the tariffs. India’s major exports to the US comprise pharmaceuticals, mobile phones, electronic items, other engineering goods, gems and jewellery and textiles and clothing. Barring pharmaceuticals and mobile phones, the other industries, especially the labour-intensive ones, are going to be badly affected. Since our competitors from South and Southeast Asia enjoy substantially lower tariffs, most of our low-to-medium-valued orders are likely to be diverted to them. Also, because of the 90-day extension granted to China on August 12 and the 30 per cent tariff rate, it is likely to benefit from the situation.

India’s major imports from the US are mineral fuel and mineral oil, uncut and unpolished diamonds, capital goods and machinery, organic chemicals and plastics, edible fruits and nuts. Most of these products are used as raw materials or intermediate products. Retaliating against the US by raising tariffs will only hurt our own domestic and export markets. Also, tariff retaliation can result in cross-sectoral retaliation in services, which needs to be avoided.

The way other major countries, barring China, have all succumbed to US pressure and agreed to face tariffs of 10 per cent (only the UK) or more, the chances of India getting a reprieve in the short term appear dim. What could, however, happen is that inflationary pressures, job losses and a pushback from Trump’s base in the run-up to the mid-term elections in November 2026 result in a tempering of his actions. The other possibility is that the tariffs could be declared beyond the authority of the US President by the judiciary, which could take the matter to the US Supreme Court. Also, even if the administration loses the case in the Supreme Court, it might be tempted to use other pieces of legislation to achieve the same ends.

The WTO has a two-stage dispute settlement system, with the second stage appeal being decided by three members of a seven-member permanent body called the Appellate Body (AB). All seven members of the AB have to be selected by consensus by WTO members. President Trump, in his first term, had persistently blocked the nomination of new members to the body. Since 2019, the AB has had no members. Thus, the dispute settlement system has become non-functional. Therefore, filing a dispute against the US may only serve as a symbolic gesture.

The tariffs violate the US’s binding commitments to all the members of the WTO. They also violate the Most Favoured Nation principle — not discriminating between different countries in terms of tariffs, except under a free trade agreement. President Trump’s actions and the silent but willing acquiescence of all the developed countries show that the consensus which had led to the setting up of the GATT in 1947 (which later transformed into the WTO in 1995) lies in a shambles.

There are some steps India can take to minimise the effects of the tariffs.

India’s export basket is not very broad and spans only a few sectors. We are also heavily dependent on the US ( 17 per cent of our goods exports) and the EU. The most important thing which needs to be done is to diversify both our export basket and destinations. This will require, of course, at least a few years and will need robust public-private partnerships.

Second, we need to conclude our FTA with the EU as quickly as possible and deepen and widen our existing FTAs with Japan, Korea, ASEAN and Australia. Third, we must explore expanding trade with the BRICS countries. Finally, we need to bring in multi-sectoral domestic reforms spanning both the Centre and the states to provide the impetus to economic growth.

This turn of events should not be viewed as a disaster but as a wake-up call. It is an opportunity to reform and grow, as we did in 1991.

The writer served as India’s ambassador to the WTO (2010-14)