For starters, 25% tariffs and additional penal tariffs for trading with Russia are not a small issue. It is likely to impact a number of Indian export items to the US; like gems, Jewellery, textiles, drugs etc. For now, drugs are exempted, but that is more because US needs healthcare at a low cost. In all other products, India is likely to lose share to Asian economies that have less-punishing tariffs. India runs its biggest trade surplus with the US, so it is also going to deepen trade deficit for India as a whole. Impact may be short term and also partly long term.

That appears to be the biggest stumbling block. US has accused India of funding the Russian war effort by being Russia’s largest oil buyer. In fact, 35-40% of the Indian oil import basket is dominated by Russia; what was less than 3% couple of years back. India has insisted that energy security is its sovereign right and no US sanctions can interfere with that. Clearly, that is something India should stick to. After all, it is not for the US to decide how India procures its oil and at what cost.  Nor can the US deploy sanctions just to create a market for its crude exports. 

It is not just the US action, but also the way India retorts that will matter. For now, indications are that India will not indulge in any reciprocal tariffs on US imports. Clearly, the US is trying to use these penal tariffs as a bargaining chip to pressure India, and that is exactly what India must resist. Most other countries like the UK, EU, and even Japan have gone out of their way to placate the US. While the US is a key trading partner, it is time for India to strike its own path in global trade, rather than being driven by the US. For India it is time to get into more trade deals and alliances, since it does like the era of free trade is over. 

Nearly 25 years back, when the Budget withdrew all tax sops for IT industry, it was almost like a death knell. Instead, the Indian IT industry picked itself up and created its own clients on merit. In the last 25 years, IT industry has grown manifold in sales, profits, and valuation. The lesson is that today, India is too focused on the US surplus, whereas it should be looking to reduce its deficit with China. India should use this time to work closely with other major trading partners like China, Japan, UK, and EU and look to reduce the dependence on the US for trade surplus. Bear in mind, it will still create pain in the short run. But, in the long run, India will have a much better and robust paradigm for trade!