Trump Tariff Threat of ‘20-25%’: Is Modi Government Ready to Acquiesce or Will it Fight its Corner?

The chances of the Narendra Modi government acquiescing to President Donald Trump’s colonial-pattern of imperial preferences is very high. This is close to what the British Raj practiced in its colonies like India. 

Such preferences would demand substantial tariff reduction commitments of India, including on the most sensitive agricultural products, for American products, removal of alleged non-trade barriers, as well as hundreds of billions of dollars worth of defence and energy purchases.

On July 29 (Tuesday), while returning from Scotland, President Trump said “India trade deal has not been finalized”, also suggesting that Indian goods entering the American market could be subjected to a high tariff of “20-25%” 

Effectively, if such high tariffs are imposed, then, Indian products will find it difficult to compete with other countries in the American market. Though India is his “friend”, he said, it “charges higher tariffs than many other countries in the world.”

With the fresh August 1 deadline for the “Liberation Day” approaching in the next 48 hours, and even if the deadline is extended, the Modi government may well find itself going down a strategic abyss because of Trump’s imperious and imperial template. 

On Sunday (27 July), the world witnessed another case of submission to the Trumpian template when the world’s largest trading bloc (European Union) agreed to zero tariffs on American industrial and farm products entering the markets of the EU-member states, in return for a baseline tariff of 15% to be charged on EU’s exports to the American market. 

The global trade landscape is rapidly fracturing as the United States, under President Donald Trump, forges a new era of bilateral deals that appear to be sparking a worldwide tariff war.

While the U.S. and China began a third round of bilateral negotiations in Stockholm on July 28 on seemingly equal footing, the European Union, appearing to have made significant concessions, has raised alarms about the dying multilateral trading system, particularly its custodian, the World Trade Organization (WTO).

EU Concedes to U.S. Demands in Unprecedented Deal

In one stroke, the EU has seemingly capitulated to U.S. threats and unprecedented public criticism from President Trump, delivered in the presence of European Commission President Ursula von der Leyen. The agreement calls for a permanent moratorium on customs duties, which is likely to violate EU’s acceptance of the termination of the permanent moratorium at the WTO’s 13th ministerial conference in Abu Dhabi last year. Countries, including EU and Japan, had agreed to terminate the moratorium over customs duties on electronic transmissions from end-March, 2026.

This is an unprecedented development - a stark departure from past negotiations - in the 80-year history of relations between the US and the EU, two equal trading powers.

It is not that previous rounds of trade negotiations have been wrinkle-free. The multilateral Uruguay Round (1986-93), saw frequent breakdowns, even the landmark 1992 Blair House accord on export subsidies required intense effort to finally conclude the talks.

But this process is playing out differently.

The day after the deal was announced, EU members seemed to awaken to a new reality of “submission,” to quote French Prime Minister Gabriel Attal on July 28. The euro dropped precipitously, with media reports suggesting that the bilateral agreement was a key factor. 

Facing an August 1 deadline to avoid a threatened 30% U.S. tariff on European goods, the EU appears to have rushed to secure an agreement but at a phenomenal cost to its 27 member states.

The deal does remove immediate uncertainty, but it creates more uncertainty for the EU and other countries in the coming days, including India. 

In fact, the agreement’s impact is far from settled.

Pharmaceuticals and Future Tariffs Loom Large

The EU’s exports of both patented and generic drugs from Ireland are likely to be hit hardest. President Trump has signaled his intention to soon announce Section 232 tariffs on pharmaceuticals and computer chips. Pharmaceuticals are the biggest export earner for the EU worth $127 billion in 2024.

India is also a major exporter of generic drugs with a trade surplus of around $16 billion with the US in pharmaceuticals.

Though Mexico ranks as the largest single-country US trading partner, the EU as a 27-nation bloc is larger.

The US imported about $606bn in goods from the EU and exported around $370bn in 2024.

U.S.-China Talks and Global Retaliation

Amid transatlantic tensions, the Trump administration froze sanctions on advanced AI chips manufactured by Nvidia for China ahead of the Stockholm talks, a move that triggered sharp concerns within the U.S. security establishment.

In the face of U.S. reciprocal measures, China and Canada are the only two countries that have retaliated. EU, which had previously considered creating a “parallel” trade arrangement with major Asian countries, appears to have lost its ability to negotiate in one go. 

The Domino Effect of Differentiated Tariffs

A critical and destabilising aspect of the U.S. strategy is the principle of “differentiation” in Trump’s imperial preferences based on arbitrary considerations. 

“Each partner country must know how much tariff is being imposed on competitor countries,” said one trade analyst.  

“For instance, both Japan and the EU would be concerned about the tariff imposed on Korea, which competes with them on automobiles,” the analyst suggested. “If somehow the US agrees with Korea on 12%, both Japan and the EU would feel aggrieved and would want to renegotiate… In other words, there can be no finality in individual agreements until all are negotiated and shared with all other negotiating partners.”

This dynamic is already playing out. 

Indonesia has agreed to zero-tariff treatment for American goods while accepting a 19% U.S. tariff on its own. Vietnam agreed to a 20% tariff on its goods exported to the U.S. in exchange for zero tariffs on American goods entering its market.

Threat of Global Trade Anarchy

Effectively, the Trump administration has created a tariff war among affected nations, who may soon realise the extent of the tariff sovereignty they have ceded. This tension from differentiated tariffs could ignite new trade frictions. With the WTO seemingly brought down to the ground, the world could witness a prolonged phase of anarchy.

Trump’s Strategic Goals

“Trump thinks higher U.S. tariffs are a good way to do some mix of the following: reshore domestic manufacturing, reduce the U.S. trade deficit, and increase revenue so that he can lower income taxes ,” says Simon Lester, in the International Economic Law Policy Blog on  July 28.

Lester notes a significant security component intertwined with these trade deals. “President Trump is engineering the sale of US weapons to Europe, thereby increasing US exports and helping US manufacturers.” It raises critical questions about the blurred lines between trade and security.

In short, the new “leviathan” in global trade, driven by this U.S.-led strategy, threatens to wreak havoc in international trading relations unless nations can rally to counter this “new normal.” India must not acquiesce to Trump's imperial preferences without a fight.

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