Trump's tariff on India major setback in bilateral relations, say experts

New York/Washington: US President Donald Trump's move to levy a sweeping 25 per cent tariff on Indian imports is a "major setback" in bilateral relations at a time when New Delhi is striving to become an alternative destination to China for American investors and traders, a former US Trade Representative official said.

"While there were early indications that a trade deal with India was imminent, it turned out that this was not possible," Senior Vice President of Asia Society Policy Institute (ASPI) and former Deputy US Trade Representative Wendy Cutler said in a statement.

Trump on Wednesday announced imposing a 25 per cent tariff on all goods coming from India starting August 1, plus an unspecified penalty for buying Russian crude oil and military equipment.

The surprise announcement came a day after Indian officials said that a US trade team would visit from August 25 to negotiate a trade deal.

Cutler said the 25 per cent tariff assigned to India is a "major setback" in US-India relations at a time when Delhi is striving to become an alternative destination to China for US investors and traders.

"Hopefully, the high tariff will spur India to reconsider its current positions and take bold steps to address US concerns, including lowering its tariffs and eliminating the litany of non-tariff measures it imposes," she said.

Pointing to India's "domestic protectionist forces" that have obstructed trade deals earlier, Cutler said there were hopes that things were different this time around but "they never materialized".

ASPI's Director of South Asia Intitiatives Farwa Aamer said there was strong optimism around the robust five rounds of trade talks, but clearly there was not enough to satisfy Washington's expectations.

"These negotiations were always going to be complex, and even with an early start to the talks, the timeline was too tight given India's sectoral concerns and strong reservations on opening access to its dairy and agriculture markets," Aamer said.

The 25 per cent rate is much higher than that of Japan, Vietnam, and Indonesia, which means India loses some of its competitive advantage. "This will certainly impact the export sector, making the case for fast-tracking negotiations on the BTA as they go into the next round of talks in August," she said.

Aamer added that the measure may also "dim" the confidence in the US-India bilateral relationship.

"There is the India-Pakistan ceasefire mediation narrative that the president has championed and India has repeatedly dismissed. The Russia and BRICS angle is another factor. All eyes are on how India will deal with this 'temporary measure'," Aamer said.

Former advisor to President Joe Biden and a Democrat Ajay Bhutoria voiced "serious alarm" over the 25 per cent tariff and penalty announced by Trump on India, characterizing this action as "signalling the deepest decline" in India-US relations under the current administration.

In a post on social media, Trump said that the US has a massive trade deficit with India and also criticised India for buying a "vast majority" of its military equipment and energy from Russia.

Bhutoria said that as a committed Democrat, he is "profoundly" concerned by this development.

"I had earlier cautioned the Indian-American community about the potential for this outcome" and to vote for Democratic leader and former Vice President Kamala Harris in the 2024 elections.

"Now we are experiencing its effects. The tariff puts the livelihoods of numerous South Asians at risk and jeopardizes years of advancement done in US-India relationship under President (Barack) Obama and President Biden," he said.

Bhutoria added that the India-USA relationship has fallen to its most challenging phase due to flawed policies, with this 25 per cent tariff plus penalty set to start on August 1st, adding that this "stringent measure" endangers "our economic stability and cultural connections".

Trump also said that the August 1 deadline for tariffs stands strong and will not be extended. "A Big Day for America," he said.

"Remember, while India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country. Also, they have always bought a vast majority of their military equipment from Russia, and are Russia's largest buyer of energy, along with China, at a time when everyone wants Russia to stop the killing in Ukraine — All things not Good! "India will therefore be paying a tariff of 25 per cent, plus a penalty for the above, starting on August 1st," Trump said.

Meanwhile, the Indian government said in a statement that it has taken note of Trump's statement on tariffs and is studying its implications.

"India and the US have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective," the statement said.

"The government attaches the utmost importance to protecting and promoting the welfare of our farmers, entrepreneurs and MSMEs. The government will take all steps necessary to secure our national interest, as has been the case with other trade agreements, including the latest comprehensive economic and trade agreement with the UK," it sad.