How to deal with an unpredictable US President Donald Trump? Jayant Dasgupta, ace negotiator and former ambassador to World Trade Organization (WTO), tells Moneycontrol’s Shweta Punj that Trump has chosen his targets very carefully. While Trump has been extending China’s negotiation timeline, the tariff threat to India shows that the US President has calculated that New Delhi can’t retaliate in terms of goods trade. If India retaliates, it could make the local industry uncompetitive.
Moreover, Indian negotiators need to be mindful of what they promise because future US administrations are unlikely to roll back the restructured tariffs agreed upon as part of the trade deal, Dr Dasgupta explained. But what are India's options in terms of tariffs? Dr Dasgupta says, not too many, since India already has zero tariffs on industrial goods and has made it clear that agriculture and dairy cannot be opened up.
Edited excerpts:
Q: The 25 percent tariff penalty, taking the total rate to over 50 percent has come as a shock. So, where do we go from here?
Jayant Dasgupta: The first thing is that this only goes to show President Trump's unpredictability. He has, on the one hand, been shifting the goalposts again and again for everyone, starting with his closest allies like Canada, Mexico, the European Union and Japan. And Trump has been threatening them and had his way with Japan, the European Union, and with a host of other countries, but not so far with Canada and Mexico.
One of the reasons why he hasn't had his way with Mexico and Canada is because these countries have a lot of secured access to the US market, upwards of 85 percent of their products. So, they are secure in the belief that the balance 10 to 15 percent products that will be subjected to these new tariffs—Canada has been slapped with 35 percent tariffs—will not really matter very much. So that is one thing.
The second point is that he has chosen his targets very carefully, in a sense, that the countries which have the ability to retaliate, and there aren't too many of them, he has steered clear of getting into a face-off with them or a frontal conflict with them, and China comes to mind immediately. He has again given a 90-day reprieve after the first waiver of 90 days before imposing the tariffs.
So, he has calculated that India really can't retaliate in terms of the goods trade because if you look at the basket of products which India imports from the US, it is far less than the basket that India exports to the US, and there is a trade surplus of $45 billion approximately that India enjoys. But the products that India buys from the US, if you look at them—chemicals, unpolished and uncut diamonds, a lot of capital goods, some mineral oil, and the oil imports are going up, in fact, in the past year or so. So, if you take all these products which are basically meant to keep the wheels of our industry rolling, if we retaliate, we will end up paying more to some other supplier and thereby making our own industry uncompetitive. Therefore, we can't really retaliate, in a sense. So, he has, I think, figured that out or his team has figured that out very carefully.
The other point is that in services, in H1-B visas and a host of other areas, we are hugely dependent on the US. And therefore, our exports are approximately $33-$34 billion worth of services, and the US exports are more—they are about $41 billion at the last count.
But a lot of our professionals work in the US, and if you look at the country with the largest volume or value of inward remittances, which helps us tide over the current account deficit, it is the US which is a very major and significant contributor to the inward remittances. If there is something to happen to the H1-B visas, that will also hit us very badly. All these factors are there which we have to consider while deciding on the way forward.
So, we can't antagonize Trump, and from what you've said, we cannot think of retaliatory tariffs from here. So that cannot be our reaction to Trump's tariffs. Then what are our options? How should India approach trade talks with the US?
Dasgupta: Well, if you take a cue from what he said at a press conference, and he is in the habit of saying these things off the cuff, when a reporter asked President Trump about further negotiations, he said, no, not until the tariff issue is resolved. So, there is a big question mark hanging over this visit of the US delegation from the 25th of August for the sixth round of negotiations. No official communication has been received yet, I understand, by the Indian government that it has been called off. But there hangs a pall of uncertainty over this negotiation.
And in any case, this negotiation, barring the frills which will be added, will be basically about tariffs. And if there is no understanding arrived at on the tariffs, which really form the core of this agreement that we are trying to work out, then the frills really won't matter very much. This is something which we have to bear in mind: unless the tariff issue gets sorted out, this trade agreement will not reach finality, even the first tranche which was supposed to be harvested by fall, which is October or so.
So, is it a tariff issue? Is it a Russian oil issue? Or is there a larger game at play here?
Dasgupta: Well, I don't think President Trump has really got a very detailed game plan while imposing tariffs because he's been doing it, you know, quite erratically and without reason. For instance, the tariffs that he imposed on Brazil were not because of a trade surplus, because Brazil actually has a trade deficit with respect to the US. There was no reason to impose tariffs on Brazil. In fact, he should have reduced the tariffs to minus 5 percent or minus 10 percent to have an even playing field, level playing field.
But he did it because of the treatment that he thinks the present Brazilian government is handing out to the ex-president Bolsonaro, and that is, you know, through the courts of law, etc. Now, the latest reports show that he has perhaps acted at the behest of some lobbies, business lobbies on both sides. And he has actually reduced the tariffs from 50% without announcing it to something closer to 30%. So, there is no way of predicting. Yes, this is the latest news, which is coming in from some sources. There is no way really of predicting what he is going to do.
Second point is, suppose hypothetically that India were to stop buying Russian oil. He will say this is not enough. I also mentioned something about Russian arms and ammunition. So please stop buying from them immediately. So, we do that hypothetically. Then he will say, I also said that the BRICS is an anti-US coalition and it is out to de-dollarize the global economy. So please walk out of BRICS and let me know when you have walked out. And it will never stop. You know, tomorrow it could be something else altogether.
Suppose we are going for something which helps our economy, diversifying our export basket. I was going to come to that shortly. He will say, no, no, you can't build up deeper trade relationships with, let's say, the European Union or Japan or the Southeast Asian countries. There is no stopping it. There is no predicting. As far as the options open to India are concerned, we have to, there is no alternative but to diversify our exports. And to that end, I think the UK Trade Agreement FTA, which we have signed, which will of course come into effect from earliest from about April, March or April, because they are going through the process of vetting it. And then we have to conclude the EU FTA, which is at an advanced stage. And we have already said that we would try to close it by the end of this year. We should try to speed it up and get it done before that because they also have a slightly lengthy process of ratification, etc.
Then we have some very significant FTAs with Japan, Korea, ASEAN countries. Let us try to deepen those FTAs and widen them to provide greater mutual benefits. So as in the past, when we had been saying that we can't rely on imports, we must become self-reliant and produce as much in the country as possible, especially of the strategically important products. Similarly, now the time has come for us to not rely on one country for the majority of our exports, because the US accounts for approximately 18 percent of our exports. Suppose it were to come down and we were to diversify, and in fact, grow our exports to other parts of the, like the Europeans, like South America, like Africa, which we have still not explored to the extent that is required. So, in that case, our reliance or the shock that we can get from one destination of our exports will come down and other countries will also have less leverage on India.
The last point you raised, I think, is about the relationship, and I think the MEA has already answered that question. Our relationship with the US is a very long-standing, friendly relation. We have differed on issues, but we have never really had a major falling out. Apart from what I can remember is the 1971 Bangladesh conflict when the US sent its seventh fleet, which is being recounted, I think, by many in the press. So, barring that, I don't think there has ever been a major falling out.
The thing is that we have relations going back to more than a century—that is one—and it has withstood the test of time. The second thing is because of the new aggression shown by Xi Jinping's government, and even before that, in the Indo-Pacific, and the kind of actions they have taken on our border and other issues about Hambantota, Gwadar, and the other naval bases that they are building up and circling us all around, and the BRI, which is being used also to further its military interest. We need to be a part of the Quad, whether there is trade with the US or not. Irrespective of that, we need to be a part of the Quad and we need to have this security interest of ours being taken together with the security interests of the others around the Indo-Pacific—Japan, Australia, the US, Korea, for instance, which has not joined yet but could join in the near future.
So, our relationship—this is just one part of the relationship. It's an important part, but there are other very important parts also. So, if the relationship will continue, of course, it would have been dented a little bit, and public perception of the current US administration as being unreliable, I think, has gained some currency.
But the view about Americans in general, I don't think that has suffered at all. The US citizens, their education institutions, their hospitals, their healthcare system, their medical research, and their cutting-edge research in various fields of science and technology—they are hugely admired and respected in India.
If the negotiations happen, what advice would you give to the negotiators in dealing with a temperamental Trump?
Dasgupta: The first thing which comes to mind, of course, I don't think there is anything personal because I think President Trump doesn't do things on a personal basis in any of his dealings. It is always strictly business. Of course, this issue about ex-president Bolsonaro of Brazil—he is a rightist and pro-American person, and the regime that he ran was very openly pro-American, including giving up the rights of special and differential treatment at the WTO for a developing country, which Brazil had foregone at the WTO during his regime. So that is a separate issue. And President Lula, coming from a trade union background, is an avowed leftist with a history of more than 30-40 years in leftist politics. So that is a different issue. It is about the politics.
But I think to that extent, President Trump does not have any animus or bias towards Prime Minister Modi. I don't think that is one of the reasons. The reasons could be manifold. One of them is that President Trump wants to have countries aligning with US interests, which I think has come out in the executive order also—that you have to align yourself with US interests, which is that if the US is fighting a war, it is your war. If you are fighting your war, it may not be the US's war.
That is the way the current US administration thinks. If he says that the Russia-Ukraine war is the topmost priority for the president, then it should be your priority and you should try your level best to make the Russians come to the negotiating table by shutting off their supply of foreign exchange money with which they can fuel the war. So that is one thing.
If it comes to a conflict in any other area, which the US is not so keen on handling or intermediating or stopping, then you can do whatever you want, provided the US does not consider you to be inimical to its interest. So, it is basically about moving towards or acknowledging that there is already a bipolar world, and you have to align yourself either with the Chinese, in which case you will be persona non grata, so to say, or you align yourself with the US interest, in which case you have to listen to everything with the US issues, the dictates of the US.
So, this is a very tough situation, and I don't think the world really is ready for this kind of a bipolar world. I am reminded of something which President Bush, Bush Jr., had said, and he had said, "You are either against us or with us," or reportedly words to that effect. So that is not something which India, with a policy, a vowed policy of multi-alignment—which used to be, I think, non-alignment earlier, but it is the same thing in a different world. I don’t think it’s easy for us to accept that.
So, it's a tough task for the negotiators. Do you think India has room to lower tariffs to pacify President Trump, or will India have to live with these 50% tariffs and we should be prepared to deal with the pain until we are able to explore alternate markets?
Dasgupta: Well, I wanted to first touch upon another thing in the context of what you just asked. You know, there is no room for reducing any further tariffs because on industrial products, from what I hear, India has already offered near zero tariffs and President Trump has acknowledged that.
The Indians have said that you can have zero duty access on industrial products or something to that effect. So, India has already, I think, done more than what it could or what it feels comfortable with. On agriculture, which is a question of livelihood for millions of people—twice as many people who are there in the US are involved in agriculture alone in India, and even in the case of dairy farming, it is humongous. The figure is about 7 crore.
So, these are not small figures. Already, we have seen the impact of Covid when many of our small-scale industries were shut in the urban or semi-urban centres and people were forced to go back to their villages. Many of them have not come back to their small industrial units to get back their employment. They are still working in agriculture, which is shown up in the figures for MGNREGA, the offtake of MGNREGA. So, you just can't take a risk. You can't lower tariffs anymore.
Two, it is not a question of placating President Trump because he has already set his guns on another target, which is Russian oil. And as I mentioned, there is no way you can placate him by stopping, you know, the purchase of Russian oil.
The last point I wanted to mention is, suppose hypothetically, we were to reduce tariffs to zero for everything. Suppose we do it for agriculture, dairy, everything. The next US administration—President Trump would be about 82 or 83 by the time the next elections take place—will, in most likelihood, be somebody else. And whether it is a Republican or Democrat, do you think he will roll back or she will roll back the tariffs.
Even when you had somebody ideologically quite opposed to President Trump's policies in the first term—President Biden—he didn't roll back all the tariffs that President Trump had imposed in his first term. So, whatever you concede will be pocketed and will be carried on. Whatever you do will be a kind of a permanent ceding of territory or advantage or benefits. So, you have to bear that in mind, and our negotiators have to bear that in mind as well.
So, what are the levers that India has at this point? We can't lower tariffs any further. We should not stop import of Russian oil.
Dasgupta: Well, for one thing, you know, the Russian oil advantage of prices that we had—a significant advantage—has petered out almost. Now, it is just about 2 to 3 dollars per barrel. That is what has been calculated, and we buy approximately, you know, ranging from about 1.1 to about 1.8 million barrels a day. So, you multiply it by two, you will come up with a factor of, let's say, three and a half million dollars or so. And you multiply it by 365, it will be just over a billion dollars. So, the advantage that we are going to derive from buying Russian oil has come down very, very drastically. That is one thing.
The second thing is, if the US really wants to sell oil to us, it has to be competitive. We have been agnostic about buying oil. We started buying it only after the Russia-Ukraine war broke out in 2022, and that too after some positive signals from the US and some nudging from the US: "please buy Russian oil" so that the global oil prices are stabilized and there is no oil price shock in the global economy and on the US consumers.
That is what it is well recorded. Janet Yellen is on record having said that. Eric Garcetti, the former US ambassador to India, is on record. So, there is plenty of evidence to show that that is what happened. But we are not saying that we will buy Russian oil even if it is above the global prices. We will buy it only if it is a good deal for us, and we will buy American oil. Our import of American oil has been going up because they have also increased their production, and they have increasingly, I think, offered better prices. So, we are agnostic. We will buy from them. We will buy from our regular suppliers—Saudi Arabia, Brunei, Malaysia, Qatar, whatever—if we get a good deal. And with the kind of complexity factor that our refineries now have, we can deal with a very wide range of crude oil: high, sulphur content from Brazil, the Urals crude that we are getting at the moment, the Far Eastern crude that we get from Russia, you know, whatever. So, that is another huge advantage that we have. We can switch our suppliers depending on the prices that we get.
What I mean to say is that Russian oil we will continue to buy if it is one of the cheapest oils available in the global market. And if the Americans are any cheaper than that, we will buy from the Americans, even if we have to bring down or stop buying Russian oil completely. But one country keeps buying Uranium, Palladium, fertilizers, and the other country keeps buying gas and oil, much more than a group of countries like the EU buys oil and gas—much more than India does. India is only 13%. They are 22% of Russian oil and gas supplies, which they buy. So then you get onto your high horse and preach to India. That is not something which we are going to take lying down. So we will continue to exercise our strategic autonomy, buy from whichever source is the cheapest, and not switch off buying just because we have been handed a threat by the US. That's not going to happen. You sell us oil which is cheaper, we will buy from you.
Is approaching the WTO an option for India? Do you think that is where some degree of intervention could help in just settling things down a bit?
Dasgupta: Well, the WTO has been on a steady path of decline ever since 2008 because, 2009, President Barack Obama took over as the president, and he took ages to even send an ambassador to the WTO. It was about 15 months before he could send an ambassador to the WTO. So that is the kind of importance that the US gave to the WTO at that, in President Obama's term.
And mind you, President Obama's first priority was sewing up the TPP, Trans-Pacific Partnership deal with 11 other countries, which he did. And President Trump before he came to power, in his campaign speeches, he said, "I will walk out of that TPP on the first day of office." And he did that when he came to power in January 2017. He walked out of TPP. So, all that work which President Obama had done for eight years went to naught. Of course, there is a CPTPP minus the US, which has taken shape, but it is struggling along. It is just one of those other regional trade agreements now.
It started with President Obama, and in President Trump's first term, there were no fresh nominations allowed. The appellate body came to a standstill because at least out of the seven-member permanent body, at least three members have to be there to hear an appeal. So, one by one the members retire, and by December 2019, there was no member left. And President Trump carried on till, I think, January 2021. So, President Trump ensured that the appellate body was finished.
Now, if we refer this dispute to the WTO, which we have done about steel and aluminum, and Brazil has also, I think, raised this issue of 50 percent tariffs, what happens? If the dispute is heard by a dispute settlement panel of some three experts, which is the lower rung of the two-stage judicial process, and if you get a favourable ruling, you can't act on it. Why? Because the appeal process has not been exhausted.
So the other side, which has lost, will appeal into the void. There is no appellate body. So the appeal will be kept on the record, and till such time that the appellate body starts functioning—which may be five years, ten years, never—you can't really act. So the WTO as a grievance redressal body or mechanism is not in a position to deliver. So there is no point in referring anything to the WTO, which is very good to affirm your belief that you are a strong votary of the multilateral system, which we are all, you know, smaller economies, smaller exporting powers, they are there. They stand to gain from a rules-based system, which is predictable.
India also has a very bright record in the WTO of having complied with all adverse verdicts against it. And the US is the biggest—even before President Obama, the US was the country with the largest number of cases where they failed to comply with the WTO appellate body's rulings also. So, this is something which has been building up. Just to put it in perspective. So the WTO at the moment, I don't think can offer any redress. But we have reaffirmed our faith and belief and trust in the global multilateral system. So we have filed an appeal, and we will abide by the WTO discipline to take further action of retaliation, etc.
Okay, my concluding question, Dr. Dasgupta: what is the role of China? You know, Prime Minister Modi is attending the SCO summit. What are the expectations from that visit? How crucial is that meeting?
Dasgupta: China is a humongous power, not only in the military sense, but in the economic sense, so one can't disregard it, but only at one's peril. Now, what do we buy from China? More than a hundred billion dollars’ worth, and it is capital goods. It is components. It is raw materials. You look at the electronics that we buy from China—it is massive. I think it is more than thirty billion dollars. You look at even now the active pharmaceutical industry ingredients, which you buy for our pharmaceutical industry—it is very large. The kind of fertilizers that we buy, the rare earth magnets that we buy, which I think the Chinese have now put a stop to or brought it to a thin trickle.
So, all these things, the Chinese have the leverage. Then, this factory which was making mobile phones, which were basically being exported to the US and other developed countries, now the Chinese have withdrawn about 300 engineers from the factory. And they were helping in disseminating the practices and the technology required for assembly operations. So, it is a setback for India.
So the Chinese, not only are they a very important exporting country to India, and we are very heavily dependent again to keep the wheels of our industry rolling, but they are also a military threat for us all along our long border, which now has almost coalesced with that of Pakistan, because the Chinese were active in the operations in Sindoor by actively helping the Pakistanis and the naval encirclement which is going on, and the BRI, which has now come to our doorstep in Nepal, and may come to Bangladesh. So, we are in a very tough neighborhood.
So we have to maintain a good relationship with China. We have to see to what extent it can stabilize, and the Chinese don't take advantage of us, because China also should realize that we are a strong country, and we are growing stronger economically by the day and militarily also. So, it is not going to be easy for them to push us around. So there has to be some kind of basic understanding. Of course, the border issue, I think, can be kept on the side for the time being, but it also has to be resolved at some point in time.
The other issue is about investments. The Chinese are very keen that they should be allowed to make investments in India, but ever since the Galwan clashes, we had put a stop to that. Now, there are signs of a thaw in that also, that we will allow them to come in and invest. So, of course, not in the strategic industries, but in non-strategic industries. So that is something as well. And we are going to resume direct flights from India to China, which we had stopped after the Galwan clashes. So I think there is a process of normalization. But we have been through this many time in the past—things have reached a kind of a high, and then, even when President Xi Jinping was here meeting Prime Minister Modi, they were attacking in Galwan or building up their forces near Galwan.
So, one, China is again totally unpredictable. It works according to a well-designed plan and a long-term plan. And, if I may put it very, very bluntly and crudely, no superpower or big power wants another emerging power to come and pose either a challenge to it or attain equality with it. That is one of the problems.
All right. Okay. Thank you so much for that, Dr. Dasgupta.
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