Look beyond US market – Opinion News

By Biswajit Dhar

During the past few weeks, it had become increasingly evident that the bilateral trade agreement (BTA) negotiations between India and the US had reached an impasse. Therefore, as Donald Trump’s August 1 deadline for concluding trade deals drew close, the Indian government must have anticipated that the US President would impose “reciprocal tariffs”. And not unsurprisingly, President Trump imposed 25% tariffs on imports from India. But what India would be more worried about is the threat of “a penalty” for buying “a vast majority of … military equipment from Russia”, and for being “Russia’s largest buyer of energy”. This is particularly in light of Trump’s strong support for the Sanctioning Russia Act of 2025, a Bill aimed at pressuring Russian President Vladimir Putin to end the ongoing war in Ukraine. This Bill includes a controversial provision to impose a 500% tariff on imports from countries such as India and China that continue purchasing Russian energy products.

Standing up to agri-business and unfair trade

The 25% “reciprocal tariffs” have been imposed since the Indian government refused to buckle under Washington’s pressure to open its market for grains like corn and wheat as well as soya bean and dairy products. This pressure was the reflection of lobbying by the US agri-business, one of Trump’s strongest supporters. Given the strength of these lobbies, particularly their proximity to the US President, the government deserves credit for standing up to the Trump administration’s pressures and protecting the country’s farmers against the US agri-business. There is no doubt that the costs of yielding to the pressures and sacrificing the farmers’ interests would have been far more than the burden that the 25% tariffs would impose.

India has never included major agricultural commodities and dairy products in any free trade agreement negotiated thus far on account of the vulnerabilities of the farm sector. An overwhelming majority of India’s peasantry consists of small and marginal farmers; they are designated as “low-income and resource-poor farmers” in the World Trade Organization (WTO). The government, in its notifications to the WTO, has stated that 99.49% of Indian farmers belong to this category. It is, therefore, quite obvious that if US agri-business is allowed to enter India, the country’s farmers would be unable to compete with the behemoths and would lose their livelihoods.

The added advantage for US agri-business is the high level of subsidies they have been receiving. US farm subsidies, as reported to the WTO, are the highest in the world. These increased to $216 billion in 2022 from $61 billion in 1995. Subsidies have allowed producers of major commodities in the US to sell their products below their cost of production; in other words, US producers indulge in dumping. In the WTO, where negotiations for the reduction of tariffs and subsidies take place simultaneously—these two issues being the two “pillars” of the WTO Agreement on Agriculture—India has consistently argued that its tariff reduction would be subject to the US reducing its subsidies. Unfortunately, Trump’s unilateralism gives no opportunity to discuss the tariff-subsidy trade-off in the bilateral negotiations. Thus, while the US is perpetrating unfair trade in agriculture, its President points fingers at its trade partners for indulging in unfair trade.

It is a no-brainer that by preventing dumping of cereals, tariffs provide adequate protection for India to maintain its domestic food security. In fact, it was the US which taught India the costs of remaining dependent on food imports. During the India-Pakistan conflict in 1965, the US used wheat exports under PL-480 as a political tool to influence India’s policies. The then government decided to avoid the scourge of food import dependence and, therefore, being politically manipulated, by adopting the policy of self-sufficiency in foodgrains. This policy has remained a cornerstone of India’s agriculture policy over the past six decades.

Time to diversify and deepen Global South links

President Trump’s decision to impose additional tariffs on India’s exports goes completely against the spirit of a BTA, which the two countries are currently negotiating. The “bilateral” spirit makes it imperative for the partners to consider their mutual gains for deepening long-term relationship. However, the US trade administration has been conducting the BTA negotiations under the overall rubric of President’s Trump’s “America First” trade policy, which seeks to “obtain export market access for American workers, farmers, ranchers, service providers, and other businesses”, disregarding the interests of the partner countries. President Trump is, therefore, seeking unilateral concessions from a trade partner while negotiating a bilateral agreement.

Finally, what are the likely costs of the Trump tariffs for India? The main concerns would be regarding two product groups that have substantial exposure to the US market, namely mobile phones and pharmaceuticals. Of these product groups which account for a fourth of India’s exports to the world’s largest economy, President Trump had excluded pharmaceuticals (along with copper, semiconductors, and lumber articles) from “reciprocal tariffs” during his initial announcement in April, and these exceptions are maintained in his July 31 announcement. So, while India’s pharmaceutical exports would remain unaffected, mobile phone exports could be affected. However, the tariff differentials between India and Southeast Asian countries, including Vietnam, are in the range of 5-6%, not large enough to pose a serious challenge to India in the short run.

As many countries have realised to their peril, excessive dependence on the US market can be extremely destabilising. Therefore, it would make eminent economic sense for India to diversify its exports through closer cooperation with the countries of the South. This would also be in sync with the government’s growing emphasis on the Global South.

The writer is distinguished professor, Council for Social Development, New Delhi.

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