Despite the welcome Supreme Court decision declaring the unpopular and harmful “reciprocal tariffs” under the International Emergency Economic Powers Act (IEEPA) Act illegal, President Donald Trump has not backed off. He quickly imposed a blanket 10 per cent tariff — which could rise to 15 per cent — on all imports under Section 122 of the Trade Act of 1974, effective for 150 days, and threatened to penalise any country that attempts to renegotiate agreed trade deals. Those penalties could be invoked under Section 301 of the Trade Act of 1974, which allows higher tariffs to counter unfair trade practices or violations of trade agreements, or under Section 338 of the Trade Act of 1930, which permits a 50 per cent tariff on countries that discriminate against the US. In addition to Section 232 of the Trade Expansion Act of 1962, under which he has imposed 25 per cent tariffs on steel and aluminium, Mr Trump still has ample additional weapons in his trade arsenal.
There has been shrill criticism in India regarding the US trade deal, calling it a capitulation by India. But rhetoric aside, the current deal limits imports in its sensitive farm sector while regaining the ability to sell vital labour-intensive exports — marine products, leather, apparel and textiles, and gems and jewellery — into the lucrative US market. Going forward, India and the US have huge synergies that could be realised as part of India’s AI Mission and in other areas such as biotechnology, defence, space, and energy. The huge investments in global capability centres and the recent interest in data centres serve India well.
That said, it has become clear that the trust that was growing between the US and India since 2000 under George W Bush, and then during the Obama, Trump 1.0, and Biden administrations, is now badly frayed. India can no longer expect that its strategic value vis-à-vis China is critical to a transactional US. It seems only China — with its stranglehold, for now, on critical minerals — can stand up to the US.
The US has backed off from the exorbitant tariffs of over 100 per cent it initially imposed on China, bringing it down to 30 per cent, and now to 10 per cent. Mr Trump is going to Beijing to negotiate with Xi Jinping later in March, not the other way around. India does not have similar bargaining power. While the India-US trade agreement has been delayed after the Supreme Court ruling, India should enjoy the lower 10 or even 15 per cent tariffs for 150 days and clinch a deal with the US soon. Renegotiating too much, as some suggest, carries its own risks. The recent inclusion of India in Pax Silica — key to securing supply chains in critical minerals and AI — shows that a strong working relationship, even with an unreliable US, remains vital for India’s strategic and economic interests.
With the US inexplicably damaging its economic and strategic relationships around the world, China is trying to position itself as the more responsible global power. But China is no help. Instead of rebalancing towards higher domestic consumption, China has doubled down on exports with an artificially undervalued exchange rate (see chart). Its exports to the US have declined, but its overall trade surplus in 2025 increased to over $1 trillion (5 per cent of gross domestic product). The International Monetary Fund says, “China’s reliance on manufacturing-led growth is creating significant internal and external imbalances, … causing ‘adverse spillovers’ for global trading partners.”
Trade with China does not benefit India either. Its trade deficit with China of around $50 billion per year in 2020 has doubled to over $100 billion today. China continues to restrict access to even competitive Indian exports from sectors such as generic pharmaceuticals, engineering goods, specialty chemicals, and processed food and agricultural products. India’s information technology services sector has also been unable to make any dent in China. India must also diversify away from its huge dependence on Chinese intermediate imports in pharma, mobiles, and solar components.
With the G2 (US and China) following mercantilist policies, the rest are trying to accelerate trade and investment agreements with one another. A flurry of such agreements — Korea-Japan, India-European Union, EU-Mercosur, to name a few — which would have dragged on for years have been signed. A broader trade agreement between the EU and 11 countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam ( soon to be 12 with the United Kingdom joining) under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), basically every important trading country of the Pacific Rim — will form the world’s biggest trading bloc without the US and China.
India has played its cards reasonably well so far. Including the recent trade deals with the UK, Oman, the EU, and the US, it now has nine free-trade agreements with 38 countries, covering almost two-thirds of its trade. This is a huge signal to the rest of the world that India is open to trade and not falling back to its protectionist bad old ways. An energy, uranium and critical minerals deal with Canada — with whom relations were very tense until recently — has been agreed and a trade deal is targeted by the end of the year. India’s Brics-plus chairmanship this year may provide other opportunities. India should eventually consider membership of the CPTPP.
Even in these challenging times, India has the potential to emerge as the engine of global growth in the coming 15 years. It should make this happen by pushing through key domestic reforms that the Prime Minister has promised as part of what he calls “The Reform Express,” while keeping its push for physical infrastructure and education. The increase in the allocation to defence in the recent Budget is welcome. With growing threats on all our borders, and huge opportunities and risks in the Indian Ocean region, much more will be needed. Repairing relations with our smaller neighbours should also be a high priority. In today’s dog-eat-dog world, internal strength — economic and military — is vital.
The author is distinguished visiting scholar, Institute for International Economic Policy, George Washington University
 "economy, military, trade")
