The Fraying of a partnership

ON AUGUST 4, the Ministry of External Affairs (MEA) issued a succinct statement rejecting US President Donald Trump’s accusation that In­dia’s purchase of oil from Russia is unconscio­nable and will invite an additional tariff by way of a penalty. The Indian statement, which also addressed the European Union’s (EU) warnings on the same count, did not mince words in outlining India’s position. The oil imports, the MEA said, are intended to ensure predictable and af­fordable energy costs for Indian consumers and are a “necessity” compelled by the global market situation. The war in Ukraine, the MEA reminded the US and EU, had led to a diversion of traditional supplies to Europe. The US had, in fact, even supported India’s imports in order to prevent international prices from rising as would be the case if India stopped buying Russian oil.

The MEA statement went on make a sharper point, describ­ing the US and EU actions as “targeting” India and “unjustified and unreasonable”. It pledged India would take all necessary measures to safeguard its national interests and economic secu­rity and pointed to the double standards of India’s critics as the EU in 2024 recorded a bilateral trade of €67.5 billion with Russia and its imports of LNG (liquid natural gas) touched a record five million tonnes. The US imports uranium hexafluoride for its nuclear industry, palladium for electric vehicles, and fertilisers and chemicals as well. The terse language, devoid of diplomatic padding, iterated India’s defence of its strategic autonomy and was a rebuff to Trump’s “pick-your-side” bluster.

A day after he had lashed out at India’s apparent unconcern about how its purchase of Russian oil was resulting in the deaths of innocent people in Ukraine and the Indian riposte, Trump skirted a question by news agency ANI about the MEA’s charge that the US is importing specialised compounds and rare metals from Russia. “I don’t know anything about that. We will have to check,” he said. Earlier, his irritation about trade negotiations stalling over India’s re­fusal to open up its dairy and farm sector saw him turn on Indian oil imports. “India is not only buying massive amounts of Russian Oil. They are then, for much of the oil purchased, selling it on the open market for big profits. They don’t care how many people in Ukraine are being killed by the Russian War Machine. Because of this, I will be substantially raising the Tariff paid by India to the U.S.A. Thank you for your attention to this matter!!!” Trump said on Truth So­cial on August 4. Trump made good his fresh threat on August 6 and announced a 25 per cent penalty, taking the overall tariffs on Indian goods to 50 per cent. The so-called ‘penalty’ failed to impress India and a brief commerce ministry statement said: “The US has in recent days targeted India’s oil imports from Russia… our imports are done with the overall objective of ensuring energy security for 1.4 billion people of India. It is therefore extremely unfortunate that US should impose additional tariffs on India for actions that several other countries are also taking in their national interest… these actions are unfair, unjustified and unreasonable.” It is clear the Modi government is digging in for a battle where each side waits for the other to blink. Unlike many countries that have hot-footed it to Washington to carve out deals, India has refused to do so.

The uncertainty caused by Trump’s statements casts a shadow on the negotiations for a bilateral trade agreement though dis­cussions have not been called off. Such is the nature of the layer-within-layer Matryoshka doll diplomacy that neither side is say­ing the negotiations are off. A well-placed source conversant with the negotiations said that the Indian side is open to continuing discussions and remains keen on sealing a deal. But, the source added, any trade pact would need to respect India’s red lines on GM food, agriculture, and dairy. The government had, a day after its formal statement in Parliament on July 31 responding to the 25 per cent tariff announcement, informally explained the stick­ing points. Agriculture, dairy, GM crops, and food stuff such as milk products from cattle given animal feed were off limits. India was on course to becoming a $5 trillion economy and would not succumb to pressure and compromise the interests of farmers and micro, small and medium enterprises (MSMEs). Although exports could dip, the overall impact on GDP would be limited. The developments raised the question whether Trump’s pro­nouncements are part of pressure tactics. And to what extent the US would double down on India for resisting opening politically sensitive sectors and shunning Russian oil.

The questions are hard to answer, but the deadlock and a snow­balling war of words could re-politicise the relationship in the US as well as in India. Congress, which had been preparing to accuse the Modi government of ‘selling out’ to Trump in anticipation of a BTA, changed tack and is now questioning the Bharatiya Janata Party (BJP) about the imposition of tariffs. Although India has reduced oil imports from Russia and the price advantage is vastly reduced, it does import 80 per cent of its energy needs.

While trade talks hang in the balance, at stake is the wider arc of India-US relations. The impact of Trump’s actions is not limited to grandstanding over terms of trade. The demand that India stop buying Russian oil and his decision to host Pakistan’s army chief Asim Munir at the White House weeks after the Pak­istan-inspired terrorist attack at Pahalgam in Jammu & Kash­mir followed by an intense military exchange hurt India’s core geopolitical interests. Reports of business dealings benefitting Trump’s family-owned firms that are understood to have helped Pakistan cosy up to the US president are an unanticipated intan­gible, not part of usual foreign-policy calculations. The US did last month designate Lashkar-e-Taiba (LeT) offshoot The Resistance Front (TRF), responsible for the Pahalgam attack, as a foreign ter­rorist organisation and this was followed by a United Nations Se­curity Council (UNSC) report stating that the April 22 attack in J&K could not have been possible without the support of LeT and mentions its links to TRF. The continuing cooperation on com­bating terrorism and the swift extradition of 26/11 key planner Tahawwur Rana, a Canadian-Pakistani, soon after Trump assumed office, point to synergy between the two administrations. Trump’s decisive intervention in the Israel-Iran conflict by bombing Irani­an nuclear facilities is evidence of a cut-the-clutter approach that a Democratic administration under his rival Kamala Harris was unlikely to have considered. Yet Trump’s desire to elevate trade as the determining factor in bilateral ties has shaken the founda­tions of bilateral relations that have grown since the presidency of Bill Clinton. The current antagonism does not make it conducive for Trump to be in India for a meeting of the Quad due in September.

AFTER A BREAKTHROUGH nuclear deal during Manmohan Singh’s prime ministership led to the Nu­clear Suppliers Group (NSG) granting a waiver to India, facilitating access to civil nuclear technology and fuel, India-US ties had stagnated. An onerous civil nuclear liability law stifled prospects of American firms participating in India’s nuclear sec­tor and Singh’s second term in office was quickly bogged down by a series of corruption scandals. By the time Narendra Modi became prime minister in 2014, the Indian economy had lost its sheen and foreign policy was badly in need of fresh thinking and energy. Modi lost no time in building bridges with the Obama administra­tion with both sides setting aside past hiccups like the denial of visa when the Indian leader was chief minister of Gujarat. By the time Obama’s term ended, he had visited India while Modi’s first visit to Washington in September 2014 saw the two leaders write a joint editorial in The Washington Post titled ‘A Renewed India-US Partnership for the 21st Century’.

While the new government in Delhi sought to recharge the bilateral relationship by adding specific components and goals, it took care to maintain traditional ties with Russia. Modi added a strong measure of economic considerations to foreign policy, seeking partnerships that enhanced India’s technological capaci­ties and brought new investments. He understood the role of the US government as well as the private sector in achieving these goals. “There was a better appreciation that the bipolar world of the Cold War era had given way to US dominance. It was also un­derstood that there were other rising and mid-size powers whom we needed to engage with too,” said a former official familiar with Modi 1.0. The prime minister made efforts to normalise or at least improve relations with Pakistan and China, but these initiatives met with less success. Relations with Pakistan went into a limbo after the terrorist attacks on the Pathankot Air Force base and the Army camp at Uri in 2016. Ties with China were jolted by the Doklam standoff in 2017 but did not break down as Modi and Chi­nese leader Xi Jinping maintained channels of communication. However, the 2020 Galwan clashes marked a turn for the worse. Modi’s first term, however, saw greater engagement with Israel and Taiwan, developments welcomed by the US.

The transactional aspects of Trump’s behaviour make it dif­ficult to assess if the turbulence in India-US ties is likely to be transitory or has longer-term implications. An erosion of trust can turn the clock back on steady progress in relations. As the two economies meshed more closely, an infusion of skilled Indian hu­man capital benefitted the US. The joint statement issued during Modi’s visit to the US in September 2023 during the Biden presi­dency envisioned an ocean-to-sky partnership that was largely reiterated when the prime minister met Trump in February this year. The Modi government is genuinely keen on concluding trade pacts with the US, New Zealand, the EU, and Oman as it feels the need to improve access for Indian goods and services and reduce mobility barriers. Since India is not a part of major trade agreements like the Regional Comprehensive Economic Partner­ship (RCEP), it does need to conclude bilateral trade pacts that provide stability in policy and reduce regulatory friction. There is a view in government that such arrangements will also help modernise Indian industry and provide opportunities to MSMEs and first-generation entrepreneurs, making the economy more competitive. The politicisation of the India-US relationship can only raise hackles on both sides and India’s arguments about protecting certain sectors have as much to do with national au­tonomy and sovereignty as with trade and revenues.

Going by evidence so far, Trump’s tariff wars have not resulted in a spike in inflation, possibly encouraging the view that a rise in costs will be absorbed by the foreign exporter, domestic importer, and to some extent by the consumer. Meanwhile, tariffs might prove a useful source of revenue.

Concerned by the influence of leftist, Islamist and woke ele­ments within the Democratic Party and the Harris campaign, a significant opinion in India was relieved that Trump won the presidency. Going by his first term, it was felt areas of coopera­tion would outweigh differences. Beginning with the Vajpayee government, successive dispensations have sought to supplant ideological and political barriers marked by long-held prejudices with a balanced, pragmatic and forward-looking relationship with the US. Modi has worked with presidents of differing dispositions to maintain the forward momentum, the results of which can be seen in the rising number of global capacity centres in India that are much more than mere back offices.

The test lies in big-ticket, bellwether projects like the plan to set up a factory in India to produce General Electric F414 jet engines to power India’s Tejas Mark II fighters taking concrete shape. Trump disapproves of US companies manufacturing abroad, criticising Apple’s plans to produce in India and it remains to be seen if he takes a similar view of GE’s plans that were part of the Modi-Biden joint statement. In his previous term, Trump had identified China as a long-term competitor and took a far less benign approach than Obama had. Trump’s policy framework was retained by Biden who did not dilute America’s wariness about China’s revisionist objectives. An off-and-on China policy has marked Trump’s cur­rent tenure, with Beijing resisting efforts to strong-arm it on tariffs and trade barriers. In recent years, anti-Americanism has waned in India as the influence of the Left’s dogmatism on policy declined. But Trump’s )lumping of India with countries he claims have looted and ripped off America fails to take into account stages of develop­ment and the catastrophic social impact of sudden shocks to India’s farm economy. India-US relations are, yet again, at a turning point.

Donald Trumpglobal economyIndia-US relationsIndia’s core interestsNarendra Moditrade tariff