Modi Needs a Trade Ceasefire With Trump

India badly needs a ceasefire with Trump on the trade front. This ceasefire is far more critical for lndia's economy and its millions of unemployed and partially employed. Trump seemed to have started a trade war primarily targeting China early April which resulted in the US arbitrarily imposing high import tariffs on all its major trade partners, including India.

China, the biggest target, was subjected to a 145% import tariff on all goods. Other major trading partners of the US were also slapped with 40% to 50% import duty. India had then rejoiced as a relatively much lower duty of 26% was placed on her. This gave India the hope that she would become more competitive vis a vis other competing nations like China, Japan, South Korea, Vietnam , Indonesia and European Union. But that was not to be.

India faces one of the highest tariffs

India today faces one of the highest tariffs of 25% which Trump announced on Wednesday (July 30). Most other major trade partners of the US such as EU, Japan, South Korea, Vietnam, Indonesia have managed to sign reasonable deals with tariffs ranging between 15% to 20%, which gives them a clear edge over India. China too has done a reasonable deal with much lower duties than originally imposed.

It has also gained a massive concession of being able to import semiconductor chip design software which was denied to China by the Biden regime. China in turn agreed to open up exports of rare earth magnets to US companies which are critical for production of electric vehicles and high tech defence items such as missile systems. Trump is likely to visit China to further improve their economic relationship. India ,on the other hand, is still struggling to get rare earth magnets and auto majors like Tatas, Bajaj Auto, Mahindra and others say their stock of magnets is fast dwindling.

So as of August 1, which is Trump's deadline for deals with nations, India stands quite isolated with one of the highest tariffs slapped on her. There is a double whammy as Trump has said more penal tariffs could come if India continues her special relationship with Russia in regard to crude oil purchases and defence imports. India's national interest dictates she cannot afford to dilute relationship with Russia, especially on critical co-production of high tech defence items such as Brahmos missiles etc.

So Trump has created major uncertainties for the Indian economy in the weeks and months ahead. Businesses hate uncertainty and India will have to face it. One argument is this is Trump's negotiating position and that he would relent on some of his demands. But what is worrisome is India after four months of intense negotiations with the US has not been able to thrash out even an interim bilateral trade agreement which was talked about.

Can the Modi government risk opening up the agriculture sector?

There have been newspaper reports that the biggest hurdle is the US's insistence that India open up its agriculture sector, especially allowing genetically modified crops to be imported. The problem is India's farm sector is opposed to this and it has a bearing on 700 million people engaged in agriculture. Besides, India does not have a full fledged GM crops policy. Japan for instance has made some concessions to the US on access to its agriculture market. But a miniscule population is engaged in agriculture there.

Can the Modi government risk opening up the agriculture sector? Past behavior suggests Modi does not like to expend political capital on contentious issues like farm law amendments which were rolled back after prolonged protest.

Given that Narendra Modi runs a weaker government after the 2024 Lok Sabha polls and has ongoing tensions with the Rashtriya Swayamsevak Sangh (RSS) and the swadeshi lobby , it is not clear how he would deal with Trump's demands. One big disadvantage for Modi is whatever big trade concessions he makes now will be seen as being done under pressure from Trump. The opposition will be quick to call it Modi's surrender. It is an unenviable place to be in.

Modi has to answer many questions

The opposition parties will also up the ante and start asking questions like they are doing with Operation Sindoor. Modi has to answer many questions on the trade negotiations with the US.

For instance, it is now amply clear that Modi's premature visit to Washington in early February armed with a slew of concessions to the US on trade, some already announced in the budget, was a gross miscalculation. India also offered to buy an additional $10 billion of LNG/oil from the US. India also diluted its nuclear liability law to let US companies set up nuclear power plants here.

All these unilateral offers don't seem to have satisfied Trump whose appetite for Indian market access appears insatiable. Trump is also personalising deals with other major trade partners like Japan , EU and Indonesia who have committed to tens of billions of dollar investment which the President wants to personally oversee and execute. Will India be able to follow such a template?

One thing is certain which PM Modi must have fully internalised now. Donald Trump is nobody's friend and the only thing he responds to is moolah!

The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.