The Diplomat author Mercy Kuo regularly engages subject-matter experts, policy practitioners, and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Pratik Dattani, founder of Bridge India in London, is the 500th in “The Trans-Pacific View Insight Series.”
Explain the impact of the U.S. Supreme Court tariff ruling on the India-U.S. trade deal.
Technically there was never a trade deal. [U.S. President Donald] Trump announced a deal struck on Truth Social, but India did not respond for several days. On February 9 when the White House issued a fact sheet on the “deal,” it included “certain pulses” in the list of products where India would reduce tariffs. In India, this crossed a red line, and India’s perspective was that such changes for pulses [dried legumes] were never agreed. By February 11, the fact sheet was revised by the U.S. Administration, with the word “committed” changed to “intends.” In addition, a reference to India removing digital services taxes was removed.
What this means is there was no “deal.” It was a joint statement outlining a broad framework for an interim deal, where both countries’ readouts differed. Negotiators would have picked up thereafter.
The Supreme Court ruling means that the 18 percent [tariff on Indian imports] falls as it does for other countries. However, Section 232 tariffs (which allows the U.S. president to impose tariffs on imports deemed a threat to national security) of 50 percent on steel and aluminium and 25 percent on some auto components will remain. Somewhere around 40 percent of India’s export value is to do with smartphones, petroleum products, and medicines, which will remain exempt.
How will Washington’s new global tariff rate of 10 percent affect India’s exporters?
The lower rate is of course good news for India’s exporters, but there are a few nuances to consider.
U.S. Customs and Border Protection (CBP) said it cannot immediately comply with the Court of International Trade’s order of March 4 of starting to issue refunds to U.S. importers that have paid tariffs. The CBP has provided a clear explanation as to what their challenges are and offered a solution. We’ll know when the CBP updates the court how feasible this is.
[Editor’s note: After this interview was conducted, the CBP provided an update to the Court of International Trade, stating that the technical upgrades needed to process the refunds are 70 percent complete.]
For multinationals and large corporates, later refunds may not hurt. But for smaller businesses, it is a cash flow issue and provides even more business uncertainty. Buying from partners internationally like those from India will continue to be impacted until the refunds and associated interest are resolved. This will help do more business with international partners, including India.
When the initial tariffs and sanctions were put on India, Indian MP Shashi Tharoor said that 135,000 people in Prime Minister Narendra Modi’s state of Gujarat, in the city of Surat, had been laid off in the gems and jewelry business, with the seafood and manufacturing sectors also facing heavy job losses.
Analyze implications for India’s imports of Russian crude oil in the interim.
India’s imports of Russian crude oil have fallen over the past few months, perhaps because of pressure from Washington. But geopolitics is moving at an unprecedented rate. In the context of the Iran war, Trump has indicated that he will be flexible on sanctions related to purchases of Russian oil, in order to not further disrupt global markets.
This is good news for Russia, as well as for India. It’s a situation entirely of Trump’s own making, given the U.S. actions in Iran. India should use this new leverage to ensure its own interests are best served. For every $10 increase in the oil price, India’s oil import bill would jump by over $10 billion, while inflation climbs at least 0.3 percentage points.
What are New Delhi’s top priorities in renegotiating a trade deal with Washington?
U.S. Deputy Secretary of State Christopher Landau said at the Raisina Dialogue earlier this year that he thinks pre-Trump “American foreign policy had descended into a kind of toxic brew of moralism and impotence. When we felt that we could go around the world lecturing people about values, but then when other countries would do things that were very much against our interests, we would just express concern or issue a strongly worded letter.” He was saying very bluntly that U.S. foreign policy would be pursued with greater self-interest.
He went on to say, “India should understand that we are not going to make the same mistakes with India that we made with China 20 years ago in terms of saying, we are going to let you develop all these markets, and then, the next thing we know, you are beating us in a lot of commercial things.”
In the latest U.S. National Security Strategy, the Trump administration said, “We must continue to improve commercial (and other) relations with India to encourage New Delhi to contribute to Indo-Pacific security.” The context here is that India needs to help the U.S. safeguard its prime position in the world economy and not be subordinate to any competing power, i.e. China or Russia. A real-world example of that playing out was seen with Indian response to the shooting of the IRIS Dena, an Iranian warship, near Indian waters.
Given the U.S. has a clear-eyed view of how it wants to approach India, likewise India must be assertive – both privately and publicly – about its red lines. These must be around protecting its agriculture, data sovereignty, and labor-intensive industries in particular. The negotiations must utilize India’s advantages: a stable relationship with Russia, a significant trade deal with the European Union, and an ability to diversify diplomatic and economic channels. India should proceed with caution in the negotiations and safeguard its strategic autonomy.
Neither Modi nor Minister of External Affairs Dr. S. Jaishankar have expanded much on what this might mean in future negotiations. On balance, this is the right approach, but it’s an interesting one to see since Modi and his party the BJP were severely critical of his predecessor, Manmohan Singh, for remaining silent on matters that may appear to slight India.
Assess the risks and opportunities of the India-U.S. trade deal for India’s energy security strategy.
The vast majority of India’s LNG and crude oil comes from the Middle East, so restrictions on the Strait of Hormuz will hit India hard. How this impacts future the U.S.-India trade deal is difficult to quantity for now, since neither Trump nor [Israeli Prime Minister Benjamin] Netanyahu have a clearly articulated endgame for Iran.
Negotiations with Trump have seen shifting priorities and promises. India should not depend on these and instead will prioritize the ability to protect itself against future trade and energy security shocks, by focusing on critical minerals and technologies, including alternatives to Visa and Mastercard.
The attack on IRIS Dena is a case in point. Within hours of leaving an Indian naval event it was invited to, the Dena was sunk in international waters (but near Indian waters) by a U.S. Navy torpedo. Yes, it was in international waters, but still very much in India’s backyard. And this was done without prior warning, and without any outcry from India’s government or its opposition. The U.S. did this in India’s backyard, but it would not have done so in China’s.
This means India’s energy security needs to be cognizant of how India is perceived in the U.S. National Security Strategy. It needs to ensure heavy investment in renewable sources of energy, and energy diversification where Russia continues to play a meaningful role.