By Jhanvi Tripathi

Over a whirlwind week, India has gone from the euphoria of signing one of its most comprehensive and progressive trade deals with the United Kingdom (UK) on 24 July 2025 to quiet resignation at a Truth Social announcement from the President of the United States (US).

The post announced 25 percent across-the-board tariffs on the country as well as pending future penalties. This is presumably due to the failure of the US and Indian trade teams to reach a deal before the 1 August 2025 deadline, and irritation at India’s continued defence and oil imports from Russia. The other thorn in the US Administration’s side is, of course, India’s continued participation in BRICS (Brazil, Russia, India, China, and South Africa) and its upcoming BRICS presidency, as articulated by the US Trade Representative Howard Lutnick.

The Executive Order announced on 31 July 2025 has a revised list of tariffs based on deals that have been signed, and even for countries that which the US is still negotiating. The entry into force is scheduled for seven days from the announcement. Besides the 25 per cent rate for India, the worst hit BRICS member is South Africa with a 30 per cent rate. Brazil maintains a 10 per cent rate over the baseline rate. It is unclear if this includes the 40 per cent additional emergency tariff placed, citing Jair Bolsonaro’s wrongful prosecution. Russia and China have not been listed in the present order.

The Indian government’s measured response, stating that it remains committed to negotiations for a ‘mutually beneficial deal,’ perhaps indicates that the statement has not taken the Indian government entirely by surprise. Noteworthy are the sectors mentioned in the Indian statement—namely agriculture, entrepreneurs (likely referring to the technology pharmaceutical sector), and Micro, Small and Medium Enterprises (MSMEs). The 25 percent tariff will be implemented in addition to the baseline 10 percent tariffs and already high steel, textiles, and auto and auto components tariffs. These are sectors sensitive for the Indian economy.

Substitution and Negotiation

Pinpointing oil purchases from Russia as a reason likely hinges on the assumption that decoupling from Russian oil will eventually lead to an increase in oil purchases for the US. However, as India’s Minister for Petroleum and Natural Gas, Hardeep Singh Puri, has consistently pointed out, India’s energy demand is too high, and removing Russian crude entirely from the market will drive up prices to a prohibitive US$ 130 to 140 per barrel. Although India’s oil imports from the US in the first four months of 2025 increased by over 270 percent, the cost of oil purchases from the US is also inflated due to higher production and transportation costs from the US, which neither geographic nor industrial realities help.

In all this, the sense that President Trump represents a clear version of Washington’s trade and foreign policy expectations is evident. There is no space for caution or diplomacy. A zero-sum game does not bother a country that has several avenues to pressure the world economy. For instance, the deals made with Japan, the UK, and the European Union (EU)share an underlying commonality – a historically deep security relationship with the US.

The attitude with which the US is conducting trade is a manifestation of an old power’s way to assert itself in a multipolar world. The fact that the country has forced a renegotiation with a majority of the world’s largest trading economies is equally remarkable and alarming.

The US trade administration is underestimating the country’s dependence on global supply chains, keeping prices in check for American consumers. It is also underestimating the anticipated shock to the USA’s economy, which is consumption-driven, and the pay-off will not be typical of liberal economic thinking, where domestic production will easily replace imported products.

While US consumption has increased in the past few months and the economy has registered a 3 percent increase, this growth is likely driven by importers stockpiling necessary goods before the tariffs start to make themselves felt. It is a small bubble that will nosedive as prices go up once the tariffs take effect. Unless the Federal Reserve slashes rates further from the current 4.3 percent, the economy is likely to slow down significantly once the tariffs come into effect.

The US is not dealing simply with a manufacturing slowdown. It is dealing with a skills gap created by an infamously underfunded education system from elementary to undergraduate levels, and a lack of re-skilling programmes. Manufacturing will not revive unless workers in factories are equipped with the requisite skill sets. It will also not revive without significant efforts to reduce basic production costs without eating into the profit margins that American Multinationals have gotten used to. Modern life requires far more than diet adjustments for unavailable imported food items.

The Devil in the Details

Regardless of negotiation, the idea that a reasonable deal with the current US Administration will be long-term must be abandoned. Neither can a different administration be relied on to reverse these agreements. The deals the US has ‘finalised’ seem to be dependent on how the English language is interpreted. The EU, for instance, as one American interlocutor observed, assumed that the 15 percent reciprocal tariff agreed to would be a ‘ceiling’ tariff. However, the US has stated that it reserves the right to change these tariffs in the future. Hence, these are not ‘Free Trade Agreements’ (FTAs) but interim understandings..

The danger India faces is being caught up in noise and domestic politicking over who is getting a deal from the US and who is not. Everyone is getting a temporary slip till next Washington’s irritation is evoked. The focus should not be on whether the US is, for instance, cracking a deal with Vietnam or Pakistan, but rather on the kind of deal being brought home. The India-UK FTA is a significant selling point now with its ambitious tariff reduction plan and how far it has gone on intellectual property. While domestic reservations may remain, it serves as a template to show that India is serious about doing business, which will hold it in good stead with all partners it is negotiating with, not just the US.

About the author: Jhanvi Tripathi is an Associate Fellow at the Observer Research Foundation.

Source: This article was published by the Observer Research Foundation