Take Trump at his word, and finalise a trade deal before tariffs hurt

A trade deal with the US is both possible and essential - and so is one with Europe

American President Donald Trump’s commitment to tariffs as a tool of executive power cannot be doubted. During a long career in the public eye, first as a businessman, then a television celebrity, and finally as a politician, he has always demonstrated his belief in trade restrictions and tariff walls. This is perhaps a product of his coming of age in the nervous decade of the 1980s, when Japan appeared to permanently threaten the United States’ (US’) dominance of the world economy. In 1987, he took out a full-page advertisement in numerous national newspapers, demanding tariffs on Japan; in 1989, he said that the base tariff level on successful economies should be 15 or 20 per cent. 

In this context, it’s hard to imagine that any legal challenges to his trade policy, even if successful, will throw him off course for very long. It is true that the US Supreme Court has chosen to hear a case saying that the legislative branch, and not the President, retains the power to change trade policy; that this case has been put on an accelerated timeline for disposal; and that the questions that the nine judges, even some appointed by Mr Trump, have asked suggest that they are not particularly sympathetic to the White House’s arguments. Yet judges in democracies are always careful about going up against leaders implementing policies that have received an electoral mandate, as Mr Trump’s trade policy did in 2024. Then, even if the court does gather its courage and send these decisions back to the US Congress, the legislators may choose not to defy the President. And, finally, in the remote chance that both the other branches of government come out against him, the chief executive might find ways other than straightforward executive orders to impose tariffs over their head. There are other provisions in the law that he could utilise or twist to his purpose. 

Both Mr Trump and his senior officials have launched a defence of his trade policy in recent weeks, through both words and actions. Mr Trump has declared in a social media post that opponents of tariffs are “fools”. His commerce secretary, Howard Lutnick, has been more temperate but equally firm, declaring that they are a tool for the President to use to impose “justice” on an unfair world. Alongside this, actions have been taken to partly ameliorate the direct negative effects of tariffs on consumers. On Friday, the administration released a new executive order that lowered tariffs imposed in August on over a hundred items from beef to coffee to oranges to fertilisers. Going into the festive season, the price of food is a particular concern, and Mr Trump seems eager to address that. In addition, he has suggested that the many billions being earned from tariffs for the federal government may be sent out to taxpayers in the form of a $2,000 cheque. If this happens before the courts decide, it will seriously complicate America’s fiscal mathematics, as striking down the tariff orders would require the companies who paid them to be compensated as well. 

Two things are simultaneously clear. One, Mr Trump will not retreat from his baseline belief that some tariff rate — 15 or 20 per cent, at the very least — is fair. Two, he will probably be willing to adjust individual rates, on specific product lines or countries, to minimise economic or geopolitical disruption. 

This means that India, in particular, cannot give up on efforts to come to an agreement with the US that reduces the current 50 per cent baseline tariff on its exports. India must take Mr Trump as he is, and give up on changing his mind. Fortunately, the President himself seemed freshly clear on the direction of travel in this relationship when he swore in the new ambassador to India last week. “We’re working on a deal with India, a very different one from before,” he said. He added later that “at some point, we’ll be bringing the tariffs down”. 

While these are encouraging signs, the next steps have to be taken by Indian negotiators. The President has to be given some sort of obvious win that he can sell to his public at a time when his favoured policy is under pressure. While Indian officials have been firm about protecting agriculture and dairy products in particular, the fact is that some concessions in these fields need to be offered to the Americans. It is obvious, from past deals with Australia and ongoing discussions with New Zealand, that there are compromises here that can be worked out. India cannot go to the table with red lines at this point and expect a positive outcome. 

Indian negotiators might feel empowered by the fact that economic indicators have not turned downwards so far because of trade tensions. As Ajay Shah has outlined on these pages, the first wave of Mr Trump’s tariffs, imposed in April, only reduced India’s share in the US’ import basket from 3.7 per cent in the beginning of the year to 3.1 per cent in July. This might be considered manageable. 

But these numbers do not take into account the effect of the 50 per cent tariffs, which were announced later in the year. Recent news out of specific sectors with US exposure is more concerning. The Economic Times has reported, for example, that toy exporters have found that festive-season orders have fallen by about half since last year. The longer the punitive 50 per cent rate continues, the more disruption there will be in labour-intensive sectors that are exposed to the US trade. 

The government’s actions are clear. It must move forward quickly on negotiations with the US. It must also be responsive to the demands made by exporters on reducing their compliance and regulatory burden — the recent partial rollback on quality control orders, for example, must be sustained and extended. And, finally, it must open up additional markets for exporters. Attention to the US trade partnership must not prevent a conclusion of the trade deal with the European Union before the beginning of next year.