When Trade is a Weapon

Trade, finance and investment have increasingly been weaponised in today’s global order. Trump’s tariff war on India has exposed the hollowness of Modi’s self-reliance rhetoric. The bubble of so-called Modi-Trump bon-homie burst in the face of Trump’s arbitrary and unjust action in doing business. Modi’s Hindutva brigade in America mobilised Indian diaspora to support Trump in elections. Perhaps they are now enjoying Modi’s humiliation! Indians are now paying price for Modi’s wrong policy of too much dependence on America for export-led growth. In truth the Modis have not learnt anything from China.

Washington added an extra 25% duty on top of the 25% imposed last month, citing India’s refusal to stop buying Russian crude and defence hardware.

The duties, which are 16 percentage points higher than China, 31 points higher than most south-east Asian countries and 35 points above South Korea, have pushed US tariffs on Indian goods to levels that the investment house Nomura likened to a “trade embargo”.

While India has been subjected to harsh levy by the Trump administration for buying Russian crude, the largest importer of Russian oil–China and Europe–who has been buying considerable amount of energy products from Moscow, have escaped similar treatment at the hands of Washington. China can assert itself in any situation and American hegemonic posture doesn’t matter much. In other words America knows its limits when it deals with China and Russia. His calculated policy of bullying doesn’t work here. While discussing Ukraine war in Alaska, Trump had to greet Putin with red carpet felicitation.

The US is India’s largest export market, worth $86.5bn (£64.1bn) a year. Around two-thirds of shipments are covered by the 50% tariff, threatening jobs and growth across sectors reliant on US demand.

Trump’s 50 percent tariff will most hurt India’s labour-intensive products such as textiles and apparel, sea-food, gem and jewellery. And some states such as Tamil Nadu, Maharashtra, Gujarat, West Bengal, Andhra Pradesh, Uttar Pradesh and Punjab face a disproportionate impact and their ability to mitigate fall-out on jobs is limited.

“No Indian product can stand any competitive edge under such heavy import taxes.” Economists say the tariffs could erase up to one percentage point from India’s GDP growth this fiscal year.

Unemployment is staggering. India’s overall jobless rate stood at 5.6% in June, rising to 7.1% in cities. A major drop in US exports could hit millions of workers, particularly in small sectors.

India’s giant generic pharmaceuticals sector and its electronics and petroleum products are exempt from the tariffs. Aluminium, steel and copper remain at 25%, but job-heavy sectors such as textiles, jewellery, seafood and leather are squarely in the line of fire.

India’s $179bn textiles industry includes $37.7bn in exports, with the US buying nearly $10.3bn. Mithileshwar Thakur, of the Apparel Export Promotion Council (AEPC), said Indian exporters now faced a 30% cost disadvantage compared with Bangladesh, Vietnam and Cambodia.

“Competitors like China, Vietnam, Mexico, Turkey, and even Pakistan, Nepal, Guatemala and Kenya stand to gain, potentially locking India out of key markets even after tariffs are rolled back”.

Narendra Modi’s government has urged Indians to buy domestically made goods. “I appeal to the citizens of our country to prioritise purchasing goods that are made in India,” the prime minister said recently. The government also plans to shake up the nationwide goods and services tax, cutting most rates to 5% or 18% to boost spending. But where are domestic products? Modi’s self-reliance cannot produce even camera lens, not to speak of chips for mobile phones. They depend precariously on others even for pharmaceutical raw materials. Surprisingly, Vietnam being a late comer in capitalist production and supply chain system is overtaking India in many areas.       

02-09-2025

Back to Home Page

Frontier
Vol 58, No. 13, Sep 21 - 27, 2025