Trading on Threats: Trump’s Coercive Tariff Diplomacy and Its Global Fallout

Donald Trump’s tariff strike on India has come not just as a policy decision, but a rupture in the carefully staged working of the US-India friendship. The rhetoric of ‘strategic partnership’ has collapsed under the weight of economic coercion. What was once sold as an alliance of equals has been exposed as a low-keyed business bargain, dictated on Washington’s terms.

Far from the usual diplomatic sparring, Trump’s actions represent an escalation rarely directed even at rival states – let alone towards a supposed ally. This is crass realism without restraint, diplomacy bereft of dignity, where power is exercised through pressure, not persuasion.

India may be the immediate target, but the global implications are far more serious: international negotiation is being redefined, not by consensus, but by force.

On August 6, Donald Trump escalated his tariff offensive, slapping an additional 25% duty on Indian imports – bringing the total to a staggering 50%. This makes Indian goods more heavily penalised than even those from China or Pakistan, with rates 20 and 31 percentage points higher, respectively.

The pretext? India’s continued imports of Russian crude. Citing Executive Order 14066 – which declared a national emergency to block Russian-origin petroleum – Trump accused India of “directly or indirectly” fuelling Putin’s war machine. He warned that other countries buying Russian energy could face similar retaliation.

But make no mistake: this isn’t principled diplomacy – it’s a Trump-tailored sanction regime, wielded unilaterally and selectively to punish defiance and project raw American dominance.

The new tariff, set to take effect 21 days from its issuance, hits a majority of Indian imports. It stacks atop existing duties unless specifically exempted under prior laws or executive orders, while also excluding select categories listed under Executive Order 14257. Goods entering US foreign trade zones must now be classified as “privileged foreign status”, limiting flexibility for importers.

More tellingly, the order gives Washington sweeping discretion to modify the measure – whether in response to retaliation, changing circumstances or if targeted countries begin aligning more closely with US strategic interests. In effect, it’s a coercive ultimatum: absorb the economic pain, or bow to Trump’s terms. This is not policy negotiation – it’s extortion masked as diplomacy.

US agencies have been ordered to track global oil flows, flag countries importing Russian crude – directly or indirectly – and recommend punitive tariffs accordingly. The definition of “Russian Federation oil” has been deliberately expanded to include not just crude, but all petroleum products with any traceable Russian origin. Even purchases routed through third countries are fair game if their source can be linked back to Moscow.

Enforcement tools range from sanctions to adjustments in the Harmonised Tariff Schedule, effectively turning trade policy into an extension of Trump’s geopolitical pressure campaign.

Experts warn that Trump’s 50% tariff hike puts nearly $64 billion worth of Indian exports at immediate risk – covering almost 80% of New Delhi’s 2024 trade with the US. The fallout, including any attempts to extend tariffs to currently exempted areas, may hit key sectors like textiles, pharmaceuticals, gems and jewellery, and petrochemicals – industries extensively linked with the American supply chain.

Some estimate that the shock could directly trim 0.3 to 0.4 percentage points off India's GDP growth, dragging forecasts down from around 6.5%. This isn't just a tariff – it's a direct economic blow, calculated to inflict pain where it hurts the most.

India has flatly rejected Washington’s charges, calling its Russian oil imports a pragmatic response to global market realities. Indian officials have also called out Western double standards, pointing to the EU’s 16.5 million tonnes in Russian LNG purchases in 2024 – while India is punished for doing far less.

In a pointed rebuttal to Trump’s ‘dead economy’ insult, RBI governor Sanjay Malhotra emphasised that India now drives 18% of global growth, outpacing the US share of 11%. He also cited IMF projections: 6.4% GDP growth for India in 2025, versus just 1.9% for the US – a clear reminder of who’s rising and who’s retreating.

Trump’s tariff escalation comes against the backdrop of stalled India-US trade talks, which began early this year but quickly collapsed over Washington’s insistence on prying open India’s protected agricultural and dairy sectors.

By dragging India’s ties with Russia into the equation, Trump has weaponised trade negotiations, converting economic disagreements into geopolitical ultimatums.

This move is not isolated – it fits into a broader pattern of coercive diplomacy: punitive tariffs on India, Brazil and China; potential secondary sanctions targeting Russian energy buyers; and a precarious attempt to preserve a tactical trade truce with Beijing.

Efforts to disrupt the “shadow fleet” that enables Russian oil exports may choke supply lines to both India and China, but the geopolitical cost could be severe. Rather than isolating Moscow, such heavy-handed tactics risk pushing New Delhi further into alignment with Russia and China – undermining US influence in the Indo-Pacific and weakening the very alliances Washington claims to defend.

Trump’s quirky trade policy and its implications

Trump’s “hard bargain” trade policy has overturned decades of US commitment to multilateralism, replacing it with aggressive, across-the-board tariffs. By early 2025, the average US tariff had surged from 2.5% to 27% – levels not seen since the Great Depression – before settling at 18.4% in end-July.

China was hit hardest, facing rates up to 145%, but even allies like Japan and South Korea were targeted with 15-25% duties. In Trump’s framework, alliances mean little; what matters is leverage.

The economic fallout at home is considerable. The tariffs could push up consumer prices by up to 1.8%, fuel inflation and reduce GDP by 1.8%. Industries reliant on imports – like autos and electronics – face soaring costs, with car prices set to rise over 11%. Investor confidence has slumped amid policy uncertainty.

While tariffs have generated up to $28 billion in federal revenue in June, this is also offset by retaliatory duties from major partners. Global supply chains are not “reshoring” as promised – they’re simply bypassing the US, diminishing its trade centrality. Far from protecting American jobs, critics argue, Trump’s tariffs act as a regressive tax and a drag on long-term competitiveness, turning trade into a costly political weapon rather than an engine of growth.

Challenges to capitalism and globalisation?

Trump’s trade agenda represents not just a shift in bilateral ties but a frontal assault on the postwar global economic system.

Since the 1980s, neoliberal capitalism has rested on key pillars: open markets, comparative advantage, integrated supply chains, free capital flows and multilateral rules. The tariff blitz of 2025 disrupts all of these. By inflating costs and politicising supply routes, it dismantles the productivity gains of specialisation. The erosion of predictable rules raises risk premiums, deters foreign investment and slows technological diffusion. Elevated import costs act as a hidden tax on households, squeezing real wages and distorting price signals. Efficiency is no longer the priority – economic nationalism is.

“Friend-shoring”, regional trade blocs and politically gated partnerships now govern supply chain logic, resulting in fragmented, costlier and less dynamic global trade networks.

Equally damaging is Trump’s contempt for multilateralism. Bypassing WTO mechanisms corrodes trust and legitimises unilateral retaliation, fuelling a turn toward fragmented coalitions and transactional arrangements.

As economists like Dani Rodrik and Ha-Joon Chang note, this is not the death of neoliberalism, but its mutation: an authoritarian variant that clings to pro-capital policies – tax breaks, deregulation, corporate favouritism – while discarding global cooperation.

The risks are significant. The IMF has warned of weaker growth and slower economic activity in the event of high tariffs and uncertainty persisting. While a few protected industries may benefit, the broader result is rising costs, deeper inequality and a world trading system fraying under the weight of Trump’s coercive ambitions.

India’s strategic options

Trump’s 50% tariff on Indian exports is more than economic punishment – it’s a direct challenge to India’s sovereign right to pursue its trade policy. New Delhi now faces a clear choice: concede to US demands by opening protected sectors like agriculture in exchange for relief, risking domestic backlash; pursue trade diversification through deeper ties with the EU, UK, ASEAN and Africa; or strengthen alignment with Russia and China via energy, defence and BRICS – accepting the risk of further U.S. retaliation, including secondary sanctions.

India is already edging toward Moscow. National security adviser Ajit Doval’s visit signalled continued defence cooperation, including the S-400 deal. At the same time, New Delhi is advancing EU trade talks and fast-tracking the India-UK FTA.

But any move closer to Russia or China could provoke a sharp response from Trump, especially if the US cracks down on Russian oil buyers – potentially pulling India into a wider US-Global South–Eurasia confrontation.

India’s challenge is to protect its economic interests without compromising policy independence. A dual-track strategy – broadening trade beyond the US while keeping diplomatic channels open – may be the only viable hedge against Trump's coercive tactics.

Ultimately, Trump’s tariff regime is not trade policy – it’s economic coercion disguised as strategy. It discards open markets and multilateralism in favour of unilateral pressure. By turning interdependence into a weapon, Trump is not reforming the system – he’s sabotaging it.

The damage extends beyond commerce: trust is eroding, alliances are wearing and the global economic order is cracking. In pursuit of domination, he’s setting fire to the very system he claims to protect.

The author is director, Inter University Centre for Social Science Research, Mahatma Gandhi University, who earlier served as senior professor of international relations and dean of social sciences.

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