Trump’s Reciprocal Tariffs Cast Shadow Over PM Modi’s Washington Visit

The American dream is all about asserting strength, not begging for favours, writes Sanjeev Ahluwalia.

Prime Minister Narendra Modi and US President Donald Trump in Washington on 13 February.

(Photo: PTI)

The recent Narendra Modi-Donald Trump meeting in Washington was overshadowed by the US President, who, just hours before, upended global trading arrangements in favour of the US, by establishing the principle of reciprocity as the foundation of trade relationships.

Based on the America First Trade Policy Memorandum, which was signed by Trump on his first day back in office on 20 January, the US is preparing a “fair and reciprocal plan” to counter non-reciprocal trading arrangements by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner.

It does not end there.

Unfair, discriminatory, or extraterritorial taxes imposed on US businesses, workers, and consumers, costs from non-tariff barriers or measures, and unfair or harmful acts, policies, or practices — including subsidies and burdensome regulatory requirements on American businesses operating in other countries — are all targeted.

Further, practices that cause exchange rates to deviate from their market value, wage suppression, and other mercantilist policies have been singled out.

Although implementation is likely to take longer, an initial assessment of the cost to America of such “unfair measures” imposed by other countries is to be assessed in six months.

The Turbulence of Reciprocal Tariffs

The specific outcomes from the Modi-Trump meeting seem hobbled together and underwhelming given the enormity of the uncertainty imposed by Trump's tariff action — announced hours before the meeting.

A trade target of $500 billion by 2030 would require intensive cooperation, considering that goods trade between the two countries grew at only 2.3 percent per year over the period 2013-14 to 2024-25 and was at $80 billion last year, with a goods trade gap in India’s favour of $26 billion.

On the brighter side, negotiations for a mutually beneficial trade agreement could be helped by the new US policy of not loading economic transactions with environmental or labour conditionalities.  

Preserving the dominance of the US dollar — and the US financial market which backstops it — is centre stage to Trump threatening tariff action against any country aiming to sabotage the dominance of the US dollar.

At the same time, there’s a practical realisation that business overseas needs to be done in the context of the host country. For example, the US Foreign Corrupt Practices Act 1977 (FCPA) currently constrains US companies from business practices in foreign markets not permissible in the US.

A presidential directive on 10 February has already ordered a review of the FCPA. It states,

“Overexpansive and unpredictable FCPA enforcement against American citizens and businesses for routine business practices in other nations actively harms American economic competitiveness and, therefore, national security.”

It directs the US Attorney General to cease initiation of any new FCPA investigations or enforcement actions barring exceptional cases, and to review all existing FCPA investigations or enforcement actions. 

Implications for India

In the context of India, PTI reports that several US Congressmen have also written to the Attorney General against “questionable decisions” made by the Department of Justice, including entertaining a case against the Adani Group, which allegedly paid over $200 million to government officials in India in exchange for favourable terms for solar power contracts. 

The Congressmen argued that the appropriate action would have been to defer the case to the Indian authorities since no real injury had been caused to any US interests and because the company and the alleged Indian officials are all located in India.

The new direction in US policy — not to overload economic regulations with onerous responsibilities beyond those necessary to protect US interests — aligns with the sense of practicality that is Trump’s calling card. 

Will ‘Drill Baby, Drill‘ Convert to ‘Buy Baby, Buy‘ for India?

Importing more oil from the US could reduce the trade imbalance, though this would be contingent on the “drill baby, drill” approach resulting in a production glut lowering the price of oil.

The import of liquified natural gas (LNG) in larger volumes is constrained by the cost of this fuel, compared to cheaper, albeit carbon-intensive, coal. Until domestic electricity tariffs in India start reflecting costs, the commercial demand for LNG will remain muted.

A more optimistic area for mutual commercial cooperation is in small modular reactors, where the US has technology advantages and India has an unmet demand for clean energy, to remain within its climate change commitments.

Being strategic and trusted partners, joint development, joint production and transfer of artificial intelligence, semiconductors, and biotechnology, seem appropriate. 

A new initiative – India-United States Transforming Relationship Utilising Strategic Technology – is expected to create strong supply chains of critical minerals, advanced materials, and pharmaceuticals. Another bilateral initiative was launched to recover strategic minerals like lithium and rare earth. 

The partnership between India and the US is also visible in the ‘NISAR’ satellite, built in collaboration between ISRO and NASA, which is expected to be launched soon using an Indian launch vehicle.

The Feel-Good Factor

The feel-good factor was also enhanced by the extradition of Tahawwur Rana, alleged to be the perpetrator of the 2008 Mumbai terrorist attack. India is also open to new consulates in Los Angeles and Boston to deepen people-to-people ties. American universities and educational institutions have also been invited to open offshore campuses in India. 

The Modi-Trump love fest is not over. Expectations from the meeting were blown out of proportion, given the context in which the US is reworking its global strategy to align with national priorities.

India is a key ally. But Trump’s first task is to reinvent America and make it great again. India’s national interest must dovetail into the strategies being devised to reach that larger goal.

After all, the American dream is all about speaking from a position of strength, not begging for favours. National interest should prompt India to read the writing on the wall and be ready to expand its trade and security options more widely, including with China and Russia – both of which have been mentioned by Trump as very important for global security.  

India’s focus must remain on domestic development and the unfinished reform agendas – enhancing domestic productivity, competitiveness, technological capacity incentives for research and development, and growing our export markets.

China has already approached the World Trade Organisation over the unilateral tariffs imposed by the US against it, though the effectiveness of this august body remains constrained.

The big question for India, once the reciprocal tariffs bite, is whether it will respond in kind, effectively shifting trade alliances to alternative partners, or continue with its existing policy of remaining under the radar and hoping that “negotiate baby, negotiate” will work better for us.  

(Sanjeev S Ahluwalia is a Distinguished Fellow, Chintan Research Foundation (CRF), a former IAS officer and an expert in governance and economic regulation. This is an opinion piece. All views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)