Casinos and betting companies around the world might as well start offering odds on US tariff rates across goods for different countries and for how long the rates will stick. If one were lulled into complacency about understanding the current state of affairs, the Trump administration is sure to throw a few wild cards into the mix to keep everyone on their toes – and this includes analysts as well as trade negotiators.
A few other countries, including Europe, have agreed on a trade deal with the US, and analysing its structure and form can give a strong indication of how the Indian deal might play out. Finally, a free trade agreement with the UK that was recently signed and one with Australia that was signed a few months ago give India a minor edge in the proceedings.
NATO Secretary General Mark Rutte recently warned India, along with China, Brazil and others with 100 per cent secondary sanctions if they continue doing business with Russia, including buying Russian oil. Simultaneously, US Senator Lindsey Graham is pushing for the Sanctioning Russia Act of 2025, a bipartisan legislative proposal. The bill, backed by Trump and 170 other lawmakers, threatens an unprecedented 500 per cent tariff on all goods exported to the US by countries that buy Russian oil, gas, petrochemicals or uranium. This is part of an overall strategy to choke the Kremlin’s war bank and economic lifelines. Trump has warned that if Russia does not stop its military offensive within 50 days, nations trading with Russia will receive trade penalties.
India imports 90 per cent of its crude oil needs, of which 35-40 per cent comes from Russia. Recall that in 2020, the share of Russia in India’s crude oil imports was less than 1 per cent. The response by the Indian administration has been mixed. India’s foreign secretary hit back at NATO’s double standards for both buying Russian gas and for buying refined oil from India, which uses Russian crude as inputs. He has also indicated that India might not readily fall in line, as securing India’s energy needs is the top priority for this government.
Elsewhere, there’s a tacit acknowledgement of the cost-benefit analysis. India’s Petroleum Minister Hardeep Singh Puri has implicitly acknowledged that India is prepared to “deal with these sanctions” when they are passed. What helps is that India now has diversified its import sources to 40 countries, as opposed to 27 in the past, which means that India can reduce its imports from Russia, should the sanctions be passed. While diversifying imports to other countries can turn out to be slightly more expensive, a 500 per cent (or even 100 per cent) tariff rate would kill India’s competitiveness with the only major trading partner with which India has a trade surplus.
India will have to assess the probability of Trump keeping his word on the secondary tariffs. The oil spot markets called his bluff, as the price for Brent crude barely moved from $69 per barrel. If the secondary sanctions stick and Russian oil (which accounts for 10 per cent of the total global oil supply) is shut out of the global markets, the price could shoot up to $120 per barrel. This would derail Trump’s domestic low-energy prices agenda. Moreover, if secondary tariffs on Chinese (mainly) and Indian goods stick, it would result in a significant increase in prices of imported goods and cause runaway inflation in the US. Will the acronym TACO (Trump Always Chickens Out) be validated again?
Along with the threat of secondary tariffs, Trump has also separately imposed tariffs on auto and auto parts. He is also threatening tariffs on pharmaceutical imports and a 10 per cent additional tariff on all products from BRICS countries for attempting to “destroy” the US Dollar. These additional tariffs would make the Indian side wary of signing a deal with the US, given that it may be superseded at any time by such ad hoc measures. A trade deal would mean very little if there’s a new threat of tariffs every other day.
To mitigate this, the Indian side would want explicit assurances that no new tariffs will be imposed once a Bilateral Trade Agreement is finalised. India should now insist on the agreement including renegotiation clauses, or compensation from its trading partner in case of a tariff increase. It could even insist on a clawback clause, which allows India to withdraw benefits if the US reneges on the deal.
Though it would be rather foolhardy to speculate, it can be instructive to look at some of the other trade deals that the US has recently signed to get an idea of what may lie in store for India. Though some of these details are yet to be publicly confirmed, trade deals with the UK, Vietnam, Indonesia, the Philippines, Japan and the EU have been finalised. The big takeaway is that a 10 per cent tariff rate is the new zero or the base rate.
In addition, each country faces different additional tariffs. The UK pays no extra charges, while Vietnam faces an additional 10 per cent (bringing their total to 20 per cent, down from the originally threatened 46 per cent). Indonesia and the Philippines each pay an additional 9 per cent, resulting in total rates of 19 per cent (compared to threatened rates of 32 per cent and 20 per cent, respectively). Japan and the EU receive the most favourable treatment with only an additional 5 per cent, for a total rate of 15 per cent. In exchange for these negotiated rates, most of these countries have eliminated all tariffs on US products and opened their markets to American companies.
Note that sectoral tariffs are exempted from the reciprocal tariffs. Thus, auto and auto parts tariffs of 25 per cent will apply on top of the base 10 per cent, but these countries have negotiated on some of these sectoral tariffs. Japan was able to reduce auto tariffs to 15 per cent, reduced from the threatened 25 per cent, and the UK got it reduced to 10 per cent. India should pay attention to this and negotiate on pharma and auto products to get exemptions.
The writer is an Economics professor at the Takshashila Institution, a Bengaluru-based think tank and school of public policy
