US–India trade at a crossroads: An expert’s take on tariffs and diplomacy in Trump's world

What are your thoughts on the overall economy so far? From your perspective as a scholar, how do you see the current situation? Specifically, with the US prioritising tariffs and placing itself first, what is your opinion on this approach?

Yeah, look, I mean, at one level, this reflects a kind of view taken by the administration and by this president, that the U.S., for a very long time, has borne the costs of global public goods, right? So, setting up the WTO or the United Nations, or whatever it is, and that the U.S. has not earned the proportionate return from having borne those costs. So this is a perspective. There are many who would disagree with that perspective and push back, saying that in fact the U.S. has done extremely well, and that the kind of post-World War II, postwar trading regime or geopolitical system that was in place has actually served U.S. interests and the U.S. economy very well. But be that as it may, right? So this idea that America has to be first, and that other countries are exploiting the United States and so on, is a particular type of view, and the view that, for example, trade deficits the U.S. is experiencing, or has experienced for many decades now, reflect some sort of exploitative intent by other countries toward the United States. I personally disagree with that, but that's where the thinking is, and that's where the policy is emanating from in Washington, right? So very clearly, it's led to a very high degree of economic uncertainty, a very high degree of geoeconomic and geopolitical uncertainty. And where this all ends, we’ll see. We're still very much in a stage of transition. And, as I’m sure you’ve noticed as well, just over the last three or four months, even under this administration, there have been tons of announcements: the recalls of the tariffs, delayed tariffs, changes in tariffs. And so, you know, where all this actually settles, and what finally is implemented, I guess, is yet to be seen.

Do you think the Indian diaspora in the U.S. views Trump’s tariffs as a setback to the growing U.S.-India trade partnership or just part of a tough negotiation strategy?

Yeah, but given the very positive trajectory of U.S.–India trade relations both in an economic sense and a geopolitical sense over the last several decades, I think there was certainly an expectation that this would be continued, and maybe even improved, under the new Trump administration, especially given the apparently friendly relationship between the two leaders, Prime Minister Modi and President Trump. So there was every

expectation going into this that there would be continuity or even an improvement in that trajectory. So, in a certain sense, then, the tariff announcements and the trade negotiations are, in fact, a setback. But let's be careful, I mean, the dust really hasn’t settled on this issue. The tariffs announced for India, even they are not permanent; they can be changed anytime, really. And as I understand it, at least, negotiations are still ongoing. So we’ll wait and see where things finally settle. Maybe this is just a tough negotiation strategy. Maybe it’s going to be the case that the eventual outcome is a trade deal that leaves both countries in a better position than where they are today. That’s entirely conceivable. And so, that’s yet to be seen. I think most people are just still taking in the news. In terms of the diaspora, I don’t think they’ve really had a chance to fully process what it is that’s going on. That being said, I’m sure that there are many who are surprised, and maybe a bit disappointed, by the toughness of the statement from the White House with respect to India, right? So this stance taken in these negotiations seems to focus very narrowly on the issue of international trade, trade deficits, and business, and doesn’t seem to give any allowance or room for the broader goal of improving economic and geopolitical linkages between the two countries. So I think there’s some element of surprise there, that the kind of positive connection that was building, and where the momentum had been growing over the past many years, including very recently, I would add, that somehow, that seems to have been set aside. And these negotiations are on a kind of track that seems to have their own momentum, independent of those broader considerations.

How do you see these tariffs affecting that mission and the broader sentiment among Indian-American entrepreneurs?

Yeah, current tariffs will certainly lower trade. And this is especially consequential because, on the one hand, one of the dominant themes of the last decade or at least the last half-decade has been this U.S. attempt to pivot away from overreliance on China. The so-called “China plus one” strategy, where you have China as a key supplier of goods to the U.S., but you’re also looking for other partners. And India was certainly one of the countries mentioned very often in that context, as a possible alternative platform for manufacturing particularly for the kinds of goods the U.S. needs to import. So that was an interesting window of opportunity, both for Indian businesspeople and for entrepreneurs in the U.S. And some of those opportunities were taken some very high-profile, including Apple setting up shop and opening a plant in India to manufacture iPhones and so on. So that, too, was something on a positive trajectory. But that becomes harder when there’s friction in the flow of goods between the two countries whether it’s Indian goods being exported to the U.S., or U.S. goods going to India, or U.S. companies setting up manufacturing plants and sending intermediate inputs from the U.S. to be processed and finalized, then sent back to the States. All of this type of exchange starts to become more problematic in the presence of tariffs. And so, if the tariffs are implemented and stay in place for some time, I’m sure there will be negative impacts on businesses on both sides of the border, and there’s bound to be some apprehension about that. That being said, I still think there’s an opportunity for India and the U.S. to work out a better trade arrangement even given the particular concerns expressed by the White House. I think there’s room for India to look at its own tariff regime, which is undoubtedly characterized by high tariffs in some manufacturing and other sectors, and ask some tough questions about what type of liberalization it can realistically undertake. One that could, on the one hand, satisfy American demands, and on the other, actually help the Indian economy itself. So this shouldn’t be seen purely as a concession to the United States. These are tariff reductions that could help Indian consumers, and also Indian producers especially if these are intermediate inputs coming in from the U.S. that would aid domestic production. In many ways, these goals are actually joint goals. If you think about Prime Minister Modi’s “Make in India” aspiration and President Trump’s “Make America Great Again” with its emphasis on manufacturing these two goals can be reconciled. I still believe a trade negotiation and deal could achieve both. And so I’m optimistic about that. I’m sure the business community remains optimistic as well. That being said, there’s no doubt we’re in a period of great uncertainty about policy. I expect this will hurt business sentiment and likely freeze, or at least pause, some investment plans and new business ideas that people were thinking about. And overall, when the whole concept was first introduced by the administration, they were proud to announce that everything was going to be “made in America.” But from an economic standpoint, we understand that importing goods from countries like China and others with cheaper labor and inputs often makes more sense than trying to build something like an iPhone entirely within America. Because at the end of the day, the costs of that approach are going to be felt by consumers. And ultimately, it all comes down to the consumer being affected by the cost of these decisions.

Many in the diaspora identify as both proud Americans and proud Indians. How are they navigating this moment where the two countries may appear at odds economically?

Yeah, let me take both of these slightly separately, right? So your first point about the benefits of international trade you're a good student of international trade, and so you know there are benefits to mutual exchange and so on. And I think that’s obvious, that’s visible. By and large, I would think that public sentiment in the United States as well as political sentiment over many decades has been broadly in support of free trade. And that’s reflected in the fact that the U.S. is a relatively open economy I’d say a very significantly open economy and has been for many decades. That being said, I think this kind of increasing concern in the U.S. is not completely unjustified when it applies to specific issues. So, if you reach a point where you're over-reliant on a particular country for crucial imports imports that may have national security implications then it’s very natural to recalibrate and rethink: how reliant are we on, say, China? We’re not talking about the import of Barbies and Kendalls here. If it’s rare earths, semiconductors, communications devices, and so on, I think it’s reasonable for a country to ask itself: what can we do to ensure our national security interests aren't threatened? Now, whether the response that’s actually come out of the White House is the right one to that concern I think it’s been too broad in its sweep. Alongside chips and sensitive technologies, the policy also targets everything else plastic toys, razor blades, every other goddamn thing in the world. So, it seems poorly targeted, if you will. So that’s the question about international trade the benefits of trade versus concerns about over-concentration which, again, I’d summarize as legitimate, but perhaps not adequately or efficiently addressed by the current policy. On the Indian diaspora I’m sure there’s a wide range of views and reactions to recent developments. Some are hoping this is temporary and will get resolved. Others are more pensive, not just about what this means for international trade relations, but also for broader relations between India and the U.S., and even the U.S. and the rest of the world. There are immigration concerns; people are worried about the way the U.S. is engaging the world and the shift that appears to be taking place. So yes, there are many different concerns. But I think one important thing to recognize in the midst of all this and it’s important for your readership as well is that it’s not as if India has been specifically singled out by this administration. India has not been uniquely targeted. Very close allies of the U.S. like the European Union, Japan, NATO countries, South Korea, Mexico, Canada have all been in similar positions. These are strong military and economic allies, many of whom are part of long-standing trade agreements like NAFTA, and even they have been targeted by high tariffs and have gone through tough negotiations with the U.S., many of which remain unresolved. So from the standpoint of proud Indians and proud Indian Americans, it’s important to keep in mind that this is not something specific to India it reflects a broader policy shift. Of course, we can remain disappointed with the policy that’s valid but this should not be viewed as an action aimed solely at India. I’m sure everyone wishes for a smooth resolution that addresses the core interests of both countries to mutual benefit. And I remain optimistic about that as well.

Pakistan has proven conventional crude oil reserves estimated at around 200 to 300 million barrels and is ranked as the 50th largest oil importer in the world. Given this, what are your thoughts on the new oil pact between the USA and Pakistan?

Frankly, I was surprised to see that announcement as I think many others were. I didn’t know that Pakistan had major oil reserves. Maybe someone unearthed reserves that we were previously unaware of, and we’ll just have to wait for future announcements on that. And I’ll just leave it at that, right? Of course, if there are oil reserves and there’s interest in developing them, the U.S. is free to engage in those businesses as it sees fit and so is Pakistan. So I don’t know much more about the Pakistan issue, especially with respect to oil reserves. Yeah.

In closing, how do you foresee this evolving in the future? Is there potential for additional tariffs to be implemented, and could we see a further increase in figures for the United States and India? The current 25% rate may well rise. What is your perspective on this trajectory?

Look, my thoughts on this operate at two or three different levels. One, purely from the perspective of just going into the U.S. or India or any other country lowering tariffs would be a good thing, right? There’s a very long economic history of the world that shows the benefits of international trade, the benefits of freer international trade, and that really can’t be ignored. And right now, we seem to be going against that experience. So I hope, at some point, that what we’re seeing is just the positioning and posturing that comes with negotiations and that once those are complete, we’ll return to more reasonable levels of tariffs that support global commerce in the way it has done so effectively in the past. Trade has helped generate prosperity and lift hundreds of millions of people out of poverty over the past few decades. All of that has been supported by a relatively open international trading system, and I hope we can return to that.

On the other hand, I’m actually concerned and I say this as someone who works in international economics and trade, and who has spent time thinking about the global trade system, the WTO, and so on. This kind of unilateral action by the United States, as I see it, violates many of the rules and norms of the WTO. And that has left the WTO in a very weak position. It clearly cannot enforce its own rules when one of its most powerful members chooses to act outside them. That weakens the overall structure of international trade law the rules that countries have broadly followed since the GATT and the WTO came into existence. It wasn’t a perfect system far from it but there was a framework. And now we have to ask: What is the future of that system, if countries can just decide, with little notice, to pull back from it or violate its principles, and do so without consequence? If the U.S. can do it, so can others. And if arbitrariness becomes the norm, then a lot of countries facing economic or political difficulties may start to do the same. That’s a real concern, one of the potentially lasting consequences of these recent developments.

This is an old point but one that economists and students of international trade know well: It is to remind your readers that when a country imposes tariffs, the cost is largely borne by that country itself. Sure, some of that cost may be passed on to the exporting country, because they might lower their prices to stay competitive. But for the most part, and there are many quantitative studies to support this the cost falls on the importing country. Even with the tariffs the U.S. imposed on China in recent years, studies have shown that 90% of the cost was borne by the U.S. by U.S. consumers.