"It’s hard to negotiate with a gun to your head," Raghuram Rajan, former Reserve Bank of India Governor said, sharply criticising the United States’ escalating tariffs on India as a pressure tactic that undermines constructive trade negotiations.
Rajan in an interview with Valor International, agreed that India should open its markets more and could reconsider its oil trade with Russia. But, he added, “It’s hard to negotiate with a gun to your head. And that’s basically what’s happening right now.”
US President Donald Trump has announced a 50% tariff on Indian exports, penalising the country for its Russian oil imports. India and Brazil share the top spot among countries on the US tariff list.
Trump’s decision to punish India came as negotiations between the two countries on a trade deal were expected to conclude. The US president’s remarks that India’s economy as “dead” and its tariff barriers “obnoxious” further strained relations between the two countries.
ALSO READ: India has another independence test on August 15 thousands of kilometres away in Trump’s land
The higher duty will take effect within 21 days, according to the order, providing some time for negotiation.
Indian government fired back after the announcement, saying the purchases are necessary for the nation’s energy security and blasting Trump for singling out India when other countries are also buying Russian oil. Opposition leader, Rahul Gandhi, also lambasted Trump as a “bully.”
India 'worse off' than China
The tariffs would make much of our $80 billion in exports to the U.S. "unviable." But the U.S. also exports about $40 billion to India, and some of our “exports” are actually goods made by U.S. firms, like Apple, for shipment back to the U.S. So America also hurts itself to some degree, the former RBI governor said.
As per the government, Trump's tariffs will impact about 55% of Indian exports to US.
Other countries have found ways to present “wins” to this U.S. administration—the European Union, for example, highlighted big investment pledges, though the actual outcomes are less clear, Rajan said.
"The point is to look like you’ve struck a better deal than others, especially compared to China. Right now, India—like Brazil—is worse off than China in tariff terms, which makes little sense."
India can do without Russian oil
Stopping purchases of Russian oil wouldn’t be a disaster for India, since current prices aren’t much higher than for Russian crude, Rajan said.
If Russian oil were cut off entirely, prices would rise, but "India could handle that."
"The bigger issue is political: an overt public decision to stop buying from Russia would be seen domestically as bowing to U.S. pressure, which plays badly in any democracy. If Washington had quietly asked India to phase out Russian oil, it might have been acceptable. Making it public, and tying it to a tariff threat makes it much harder politically."
On trade, there are many areas where liberalization would be good for India, according to Rajan.
"I hope that tempers cool and talks resume, because a 50% tariff is unsustainable—not just for India, but also for the U.S., which risks alienating a country it hopes will be a strategic partner."
"People remember these things for a long time, and turning them away is rarely smart geopolitics."
Can BRICS counter Trump?
Trump has labelled the BRICS group of developing nations “anti-American” and accused it of trying to undermine the dollar’s role as the world’s key currency. He has repeatedly warned of a 10% tariff on all 10 BRICS members.
Amid these escalating tensions, Brazilian President Lula last week revealed plans to call the leaders of India and China to discuss a joint BRICS response to the tariffs.
But, Rajan stated that time has passed for countries to mount a joint response to US tariffs and that the BRICS group is in "no position" to coordinate an organised reaction. Amid uncertainty, he hopes “sanity will prevail” in US relations with the world’s most populous country.
"India is not anti-U.S., and neither is Brazil in its current government. Being pulled into a bloc seen as anti-American is problematic for both."
He termed the talk of a BRICS common currency as "unrealistic" adding that it has virtually no chance of succeeding. The economies are too different, the shocks they face too diverse—a single currency would make adjustment harder, even without geopolitical tensions, he said.
"What might emerge instead are alternative payment systems, likely dominated by China or Russia. For non-aligned countries, it becomes a choice between a U.S.-dominated system and a China-dominated one—a question of the lesser evil. Ideally, you’d have a system not dominated by any single power, but that’s hard to achieve."
Rajan in an interview with Valor International, agreed that India should open its markets more and could reconsider its oil trade with Russia. But, he added, “It’s hard to negotiate with a gun to your head. And that’s basically what’s happening right now.”
US President Donald Trump has announced a 50% tariff on Indian exports, penalising the country for its Russian oil imports. India and Brazil share the top spot among countries on the US tariff list.
Trump’s decision to punish India came as negotiations between the two countries on a trade deal were expected to conclude. The US president’s remarks that India’s economy as “dead” and its tariff barriers “obnoxious” further strained relations between the two countries.
ALSO READ: India has another independence test on August 15 thousands of kilometres away in Trump’s land
The higher duty will take effect within 21 days, according to the order, providing some time for negotiation.
Indian government fired back after the announcement, saying the purchases are necessary for the nation’s energy security and blasting Trump for singling out India when other countries are also buying Russian oil. Opposition leader, Rahul Gandhi, also lambasted Trump as a “bully.”
India 'worse off' than China
The tariffs would make much of our $80 billion in exports to the U.S. "unviable." But the U.S. also exports about $40 billion to India, and some of our “exports” are actually goods made by U.S. firms, like Apple, for shipment back to the U.S. So America also hurts itself to some degree, the former RBI governor said.
As per the government, Trump's tariffs will impact about 55% of Indian exports to US.
Other countries have found ways to present “wins” to this U.S. administration—the European Union, for example, highlighted big investment pledges, though the actual outcomes are less clear, Rajan said.
"The point is to look like you’ve struck a better deal than others, especially compared to China. Right now, India—like Brazil—is worse off than China in tariff terms, which makes little sense."
India can do without Russian oil
Stopping purchases of Russian oil wouldn’t be a disaster for India, since current prices aren’t much higher than for Russian crude, Rajan said.
If Russian oil were cut off entirely, prices would rise, but "India could handle that."
"The bigger issue is political: an overt public decision to stop buying from Russia would be seen domestically as bowing to U.S. pressure, which plays badly in any democracy. If Washington had quietly asked India to phase out Russian oil, it might have been acceptable. Making it public, and tying it to a tariff threat makes it much harder politically."
On trade, there are many areas where liberalization would be good for India, according to Rajan.
"I hope that tempers cool and talks resume, because a 50% tariff is unsustainable—not just for India, but also for the U.S., which risks alienating a country it hopes will be a strategic partner."
"People remember these things for a long time, and turning them away is rarely smart geopolitics."
Can BRICS counter Trump?
Trump has labelled the BRICS group of developing nations “anti-American” and accused it of trying to undermine the dollar’s role as the world’s key currency. He has repeatedly warned of a 10% tariff on all 10 BRICS members.
Amid these escalating tensions, Brazilian President Lula last week revealed plans to call the leaders of India and China to discuss a joint BRICS response to the tariffs.
But, Rajan stated that time has passed for countries to mount a joint response to US tariffs and that the BRICS group is in "no position" to coordinate an organised reaction. Amid uncertainty, he hopes “sanity will prevail” in US relations with the world’s most populous country.
"India is not anti-U.S., and neither is Brazil in its current government. Being pulled into a bloc seen as anti-American is problematic for both."
He termed the talk of a BRICS common currency as "unrealistic" adding that it has virtually no chance of succeeding. The economies are too different, the shocks they face too diverse—a single currency would make adjustment harder, even without geopolitical tensions, he said.
"What might emerge instead are alternative payment systems, likely dominated by China or Russia. For non-aligned countries, it becomes a choice between a U.S.-dominated system and a China-dominated one—a question of the lesser evil. Ideally, you’d have a system not dominated by any single power, but that’s hard to achieve."
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