Call Trump’s tariff bluff; diversify export destinations

Giving in to Trump’s tariff pressure will neither address India’s economic challenges nor end the cycle of demands.

Trade negotiations must be governed by the principles of reciprocity and mutual benefit. Yet, US President Donald Trump’s latest actions reflect a unilateralism that leaves little room for genuine partnership. Despite referring to India as a “friend,” the Trump administration has announced a 25% tariff on Indian imports, along with additional penalties explicitly linked to India’s continued purchase of Russian oil and military hardware—a decision set to take effect from tomorrow.

Ironically, during Trump’s first term, India accommodated American concerns by halting oil imports from Iran, its cheapest supplier. Now, Trump demands that New Delhi pivot from discounted Russian energy to American products, disregarding India’s sovereign economic priorities.

Such a shift would substantially raise India’s import bills and complicate inflation management, all for the sake of appeasing Washington.

US pressure does not stop with energy; it is symptomatic of a much broader pattern of demands. The US doesn’t only want improved access to Indian market through elimination of tariffs and non-tariff barriers, especially in sensitive sectors such as dairy but also wants India to open its market for genetically modified crops. It wants India to recalibrate domestic regulations—including those on intellectual property, data storage, and digital taxation—to suit US interests.

Furthermore, the administration aims to use trade policy to solve complex geopolitical problems, such as the Russia-Ukraine conflict, but expects partners like India to shoulder part of its economic costs by forgoing discounted Russian crude and cheaper military equipment. Worse still, these moves are designed to ultimately benefit US companies, forcing India towards pricier American energy and defence imports.

Giving in to Trump’s tariff pressure will neither address India’s economic challenges nor end the cycle of demands. If anything, acquiescence may only invite demand for further concessions. As the world’s largest democracy, India’s government is ultimately accountable to its electorate and cannot accept agreements that violate domestic political or economic interests. It is imperative that President Trump appreciates these constraints, rather than attempting to bully India through punitive trade measures.

Given these mounting pressures and the risk of setting an unsustainable precedent, India must now be prepared to call Trump’s tariff bluff. The following options outline potential strategies India should consider to safeguard its commercial interests and respond decisively:

1. India should stop negotiating with the Trump administration for an unbalanced one-sided trade deal, something the likes of Vietnam and Indonesia have been forced into. Instead it should focus its energy on expediting the EU-India free trade pact by demonstrating flexibility on investment protection, automobiles, government procurement and non-discriminatory border carbon measures (BCMs), while standing firm on intellectual property rights to prevent the ever-greening of patents.

2. Though India may not wield the same level of leverage over the US as China does, it holds significant influence in at least three critical areas: energy, defence, and commercial aircraft. India can—and should—use this leverage to call Trump’s tariff bluff. It should announce that: (i) it will immediately cease purchases of all US energy products or alternatively impose a retaliatory 25% import duty on them; while also declaring its intention to continue buying Russian oil unless the US can match Russian prices, with the sovereign right to resume Iranian oil imports as well; (ii) it will mandate retrospective security clearances on aircraft purchases, thereby enabling Indian airlines to claim force majeure and potentially cancel or defer large Boeing orders, and (iii) it will begin delaying or obstructing defence acquisitions from the US, such as the F-35 fighter jets, leveraging India’s bureaucratic proficiency in subtle yet firm refusals to signal resistance without outright confrontation.

3. Change India’s China policy from one of confrontation to proactive engagement by approving all pending Chinese FDI proposals, including joint ventures, except those posing genuine security risks as advised recently by Niti Ayog. This approach could also help ease informal export restrictions imposed by China on rare earths, electronic parts, and components.

4. Reintroduce a digital tax on major tech companies like Facebook and Meta — a measure the Indian government has chosen to shelve in order to placate the Trump administration.

5. Announce an aggressive push to conduct bilateral trade through non-USD currencies under the BRICS framework, partnering with countries like Brazil which are at the receiving end of Trump's tariff blackmail.

6. Push internal reforms on a war footing to enhance India’s appeal as an investment destination and achieve double-digit GDP growth. Addressing key concerns of foreign investors—such as contract enforcement, tax uncertainties, and investment protection treaties—will further boost FDI inflows and support economic expansion. It’s worth emphasising that faster GDP growth and an open market could be India’s best commercial diplomacy. Allowing the INR to depreciate by 10-15% against the USD over the next three months would bolster exports to the US and other markets, while naturally curbing imports without the need for an increase in import tariffs.

7. Last but not the least, Indian businesses need to get out of their comfort zone and start focusing on non-US markets, which may offer lower profit margins and be difficult to crack but are necessary to diversify the risk of depending too heavily on the traditionally safer US markets. They should learn from China, which has diversified its exports away from the US over the last couple of years.

India has been patient despite repeated offhand remarks by President Trump—from the India-Pakistan conflict to advisories against Apple’s manufacturing—hoping for a somewhat balanced trade deal. At best, India expected the US to impose 10-15% import tariffs while allowing zero tariffs in most sectors except sensitive ones like automobiles and dairy. But even that modest hope is now dashed.

True friendship means respecting a partner’s constraints, not demanding one-sided concessions such as zero tariffs on all American goods, costly US energy and defence purchases, and acceptance of higher US import duties that threaten India’s labor-intensive exports and millions of dairy farmers.

The time has come for India to take a firm stand: clearly state what it will and won’t accept—including continuing purchases of Russian oil and military equipment. India will neither pick and choose between the US and Russia or China nor be bullied into taking sides, consistent with its commitment to multi-alignment and a multipolar world. It must maintain strong ties with all major powers, aligned with its long-term commercial and strategic interests.