‘Deals are my art form. I don’t do it for the money… I do it to do it, US’, President Donald Trump declared in his 1987 breakthrough memoir: The Art of the Deal.
In fact, his style of deal-making is quite simple and straightforward—aim very high and ‘then keep pushing and pushing and pushing to get what you’re after’.
This is exactly what’s playing out as far as the Indo-US trade pact is concerned. But with India refusing to dance to the beat, Trump decided that sometimes it pays to be a little wild. So, he slapped India with 50% tariffs, making it the most heavily taxed US trading partner in Asia.
Suddenly, India is caught in an awkward moment and is unable to identify itself as friend or foe with the US.
The US tariff on Indian goods now stands at 50%—25% effective August 7, and another 25% to take effect from August 27. Preliminary estimates suggest that some 55% of India’s merchandise exports to the US would be covered by the initial 25% tariff, which is expected to cut GDP by 0.2-0.4%. In absolute numbers, the 25% tariff could lead to an erosion of Rs 37,593 crore to Rs 75,188 crore worth of national output. The actual price of the tariffs could be even higher.
But Prime Minister Narendra Modi and his trade team seem to know Trump’s negotiation tactics all too well. So, they maintained calm, issuing only a brief statement about protecting national interests at all costs.
Exceptionally, this is minimal and to the point.
That’s because, as Trump wrote in his book, ‘The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you’re dead. The best thing you can do is deal from strength, and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can’t do without.’
In fact, Trump insists on not going into deal-making without having leverage.
Unfortunately, India doesn’t have that luxury and has only a few bargaining chips at its disposal. Put another way, Modi desperately needs what Trump calls ‘imagination and salesmanship’ to convince the US that it’s in its own interest to get a deal going.
Even after five intense rounds of trade talks, the negotiations failed to yield any results, marking a critical moment in the bilateral relationship between the US and India. Luckily, you don’t win or lose in one or a few more rounds. Given that the talks are still ongoing, India is now reassessing its strategy to secure the base tariff of 10-15%, which countries like Japan, the UK and the European Union have all managed to crack.
But that looks like a tall task right now, particularly given Trump’s repeated rants about India and its economy. For the government, the problem was what Trump says each day, while for the markets the absurdity of his remarks are like head colds, which come and go. Critics, however, see it as the end of the Trump-Modi bromance.
All said, India has a little over a fortnight to avoid the additional 25% levy for importing Russian oil. India is not the only buyer of Russian oil and there are other guzzlers like China, Turkey and Europe. Still, India unexpectedly landed in Washington’s crosshairs and much will depend on whether the US can pressure Russia and Ukraine toward a ceasefire, using the threat of tariffs on India as leverage.
For now, though, India’s worst fears have materialised with the latest tariffs, as Urjit Patel, former RBI Governor noted. “One hopes that this is short-term, and that talks around a trade deal slated to make progress this month will go ahead. Otherwise, a needless trade war, whose contours are difficult to gauge at this early juncture, will likely ensue,” he wrote recently in his LinkedIn post.
The tariffs on Russian oil are yet to roll out, but Trump has already claimed success in hitting Moscow’s economy. According to him, the Russian economy was struggling due to global pressures and the conflict, and he insisted that his tariffs on India for purchasing Russian oil delivered a big blow to Moscow’s economy.
The question is whether Modi will abandon trading ties with Russia or stand firm against the US. For now, the government has avoided confrontation and has no intentions of going mob-handed against the US. That said, it’s urgently exploring strategic alignments with other trading partners, including China.
Breaking a five-year drought, Modi is all set to visit China for the regional Shanghai Cooperation Organisation summit—his first since the 2020 Galwan border clashes—while Russian President Vladimir Putin is expected to hunker down in Delhi sometime this year. Brazil, which too is facing punitive levies of 50% on exports to the US, wants to join forces. Its President Luiz Inacio Lula da Silva spoke recently with Modi and called for a joint response.
Separately, India has reportedly paused a $3.6 billion deal to acquire Boeing jets and importantly, with the RBI quietly allowing Indian banks to open foreign rupee accounts sans approvals, the government took a rather bold step towards de-dollarisation.
With bilateral trade valued at over $190 billion and India’s ambition to increase it to $500 billion by 2030, both sides will have much to lose if the stand-off escalates and the implications of a failed deal will be far-reaching for both.
Most deals do fall out, no matter how promising they seem at first. But the unravelling of what seemed like a historic deal between the world’s largest economy and the world’s fastest-growing economy only confirms the sensitive nature of dealing with President Trump, who’s as obsessive, driven and sometimes almost maniacal.
But as far as his real estate deals are concerned, Trump claimed that he won them by wearing everyone else down. And now, he’s hammering the same strategy on trading partners and is expecting a similar victory.
What exactly did Trump’s business deals add up to in the end? He doesn’t have ‘a very good answer’, except to claim that he had a very good time making them.
Perhaps for Trump’s trade deals, too, the real excitement is playing the game itself.