Take it on the chin.

Modi misread him on multiple counts. Three stand out. First, his megalomania. Second, his constricted mental faculties that make him incapable to think through the issues of international import. And third, absence of even an apology of logic in most his actions which he quixotically justifies. He knows that the world knows the reason for imposition of high tariffs on India. It is personal. Nothing to do with his pretentious concern about Russia-Ukraine war, a war aided and funded by his own country. More on that in another blog. Coming to the issue in hand, his bearhug will financially bruise India. Bruise, not wound, putting paid to his deeper, morbid agenda.

Donald Trump is a dimwit. A mandbuddhi. His understanding of the economics of international trade is as put-offish as his ability to shake his posterior to the famous YMCA number, a demonstration of which all witnessed at his inaugural ball. Even a freshman knows that if 25% + 25% tariff on imports from India can price its merchandise out of the market, what further harm can incremental tariff do which he warned India of again. Except for boosting the ego of a cerebrally-challenged person. To that end, we invite him to try a tariff of 250%. The courtiers (JD Vance, Marco Rubio, Howard Lutnick, Scott Bessent, Peter Navarro and Kashyap Pramod Patel) need to grow testicles and tell the emperor that he has no clothes. Without any aggressive posturing, India has made light of his tariffs and quietly, but firmly, has embarked on the countermeasures.

Deal with the eccentric.

Let’s acknowledge the reality, sans emotions. Let’s not expect that the sane in the USA can make him see reason. Poor things, they themselves are trying to come to terms with the sudden shift to uncouthness in running the US administration. Military is being deployed against citizens. State police are undermined publicly and federalized. International diplomacy is being conducted over Twitter. Judges are being arrested. Federal Reserve chiefs are being sacked without any authority. Famous citizens, who are uncomfortable with his Trumpish ways, are moving out of the country. Critics are being raided by the FBI as its Director shares the pearls of his new-found wisdom that nobody is above the law. White House has become Guantanamo Bay where heads of hapless nations are brought in to extract make-believe ceasefire agreements out of. Terrorists are invited for lunch and are served the nomination forms for Nobel prize just before dessert. International trade has become a theatre of the absurd.  Thankfully, Trump’s destructive agenda is getting pricked by some countries, especially the BRICS countries. This nettles him no end. From India’s point of view, he is just a modern-day Shylock and is to be treated as such. He needs to be spoken to using his own grammar, without being as loud.

Elementary, Mr. Watson.

India’s bilateral merchandise trade with the USA in 2024-25 was USD 132 billion, with a Balance of Trade (BoT) of USD 42 billion in India’s favor. There is no gainsaying that India exports more to the USA than it imports from it. Not an ideal scenario but common in international trade. Exports and imports happen basis the requirements of an importing country and the ability of an exporting country to meet the requirements. The USA doesn’t import from India out of some Mother-Teresa-ic empathy. It imports because it needs Indian merchandise. These are commercial calls. No favors sought, no favors done.  Also, trade surplus / deficit carries a history of years or decades and, therefore, cannot be changed overnight.

Let’s look at the data for 2024-25 for merchandise trade. Overall, India imports more than it exports. It had a BoT of USD 283 billion in favor of the countries that export to India. The bilateral trade with China (despite the history of one war, many serious clashes and continuing issues at the Line of Actual Control) was USD 127 billion (almost equal to the USA) with a whopping BoT of USD 99 billion in favor of China (more than double of what the USA has with India). Similarly, with Russia India has a bilateral trade of USD 69 billion with a huge BoT of USD 59 billion in Russia’s favor. India imports more from China and Russia (and many other countries) as it needs their merchandise. Not out of love for Xi Jinping or Putin. Is India doing the exporting countries any favor. No. Can Modi shove corrections in India’s BoT with them down their throats by imposing big tariffs, disregarding its cascading effect on India’s own businesses and economy. That would be Trump-ish. Having said that, India will be otherwise well-advised to reduce the trade gap by trying to increase its exports by way of bilateral agreements and other saner means. Whilst doing so, India will have to be cognizant of the ground realities of the exporting countries as they too have their own domestic interests to safeguard and markets to protect. To expect Trump (who, incidentally, had no clue that Alaska was in the USA where he was to meet Putin) to have even a basic understanding of the dynamics of international trade would be like seducing an elephant and expect to be pleasured from the act.

Move on and de-risk India.

The unpredictability of his conduct (in trade also) shall continue for another three and a half years. India, therefore, would be well-advised to take a maximalist position and assume that India’s exports to the USA shall come to a naught in the next twelve months. At 2024-25 levels, this will impact our merchandise exports to the extent of USD 87 billion. The commodities most impacted shall be electrical & electronic equipment, pearls & jewelry, drugs & pharma, organic chemicals, iron & steel products, petroleum products and apparels & clothing.

Drawing lessons from the Trump episode, one is sure, the government, the stakeholders and the subject-matter experts are planning and doing all that is required. Let me add my two bits, as follows.

• Domestic consumption needs to be ramped up substantially through affirmative actions and financial interventions.

• Trade agreements are important to bring in stability in exports / imports. As of now, India has 13 active FTAs. An agreement with the United Kingdom was entered into last month. Coming to EU, lets ensure that all removable roadblocks are removed and we secure the FTA by the year end, as planned. A similar agreement with Canada was paused because of the tensions with Justin Turd-O which can be revived now that Mark Carney is helming the affairs. In addition, the bilaterals need to be expeditiously worked upon. As regards the trade agreement with the USA, lets destine it to the dustbin of an eminently forgettable history.

• Serious exports opportunities with China and Russia need to be explored. With the changing geo-political scenario, they too, one assumes, would want to re-prioritize sources of their imports.

• BRICS is a thorn in Trump’s flesh as it aims to challenge his economic and political hegemony. The group does carry some strong divergence among its members on certain critical issues. For starters, the areas of common interest need to be built upon. If, for the time being, it can put on hold the controversial agenda-items like alternativization of dollar and creation of an independent payment system, a workable intra-BRICS+ trade agreement can be a reality, relatively quickly. Its members want to decouple their economies from the west and are eager to translate ambitions into action.

• Some commodities like petroleum products and drugs & pharma shall find alternative markets relatively easily. India, without waiting for signals from the American importers, should start redirecting these exports. Let Trump learn the hard way as to how his country’s healthcare programs get adversely impacted as India diverts supply of drugs and pharmaceuticals.

• Drawing from the historical data, there are 12 categories of goods that have logged excellent growth in exports recently, ranging from 11% (nuclear reactors, boilers, mechanical appliances etc.) to 115% (aircraft, spacecraft parts). We need to build on that.

• Military-exports is a new opportunity where India has done very well with exports worth USD 3 billion in 2024-25. More resources need to be deployed on priority to achieve the exports-value of USD 6 billion ahead of targeted 2028-29.

• Agriculture is one bull that needs to be caught by its horns. Engaging around 50% of our workforce which sub-optimally contributes 20% to the GDP, agriculture needs major reforms. Low productivity, reliance on seasonal rains, declining average farm holdings, insufficient crop rotation, farm inputs, cold-chains, financial enablers, pricing and markets. The problems are known. But politics takes precedence over the issues facing the sector. Keeping aside the partisan politics, hard decisions need to be taken to make agriculture sustainable and modern.

Whatever sails the boat.

Many countries did a full monty before Trump to address immediacy of the problem of tariff. They probably wanted to buy some time to work on more appropriate responses and, if needed, look for alternative destinations for their exports. Knowing how juvenile he is, some have even promised him investments worth hundreds of billions of dollars in the USA. Trump is ecstatic, ignorant that most have pulled a fast one on him. In Hindi we have a very representative, self-explanatory term for a person like Trump. A term I desperately wanted to use but avoided, given the smallness of my aging balls. It’s only last week when someone forwarded to me a video carrying an interview of C. Christine Fair (an American political scientist) by Dr. Moeed Pirzada (a Pakistani TV anchor), did I get the confidence. She commented on Trump’s conduct, matter of factly, that “this is just six months and you have four years of this chootiya”.