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(Reuters Breakingviews) – The standoff between the U.S. and India may well get worse before it gets better. Having slapped a 25% tariff on goods the South Asian country sends to America, Donald Trump is vowing to ratchet up the rate over the $4 trillion economy’s purchases of Russian oil. New Delhi calls the threat unjustified and unreasonable. A deal with Washington is possible, but diffusing the situation looks tricky.
Far from being a winner in the U.S. president’s global trade war, India is rapidly emerging as a big loser alongside China. Trump’s desire to isolate the People’s Republic – and its exporters routing goods through Southeast Asia – was initially expected to benefit India, which sent $87 billion of goods to the U.S. last year. His sudden cooling on Russia, though, and Prime Minister Narendra Modi’s reluctance to open up his country’s agriculture market out of a desire to protect millions of poor farmers, have put India in his firing line.
India’s economy can withstand Trump’s aggressions, for now. Nomura, a Japanese bank, reckons the 25% U.S. tariff on imports from India might shave 20 basis points off its 6.2% GDP growth forecast for the country’s current financial year. Sure, New Delhi argues its purchases of cheap Russian oil, which comprise 40% of its crude imports, are a “national compulsion” and keep global prices in check. But India can manage without it: at 2.1%, its consumer price inflation is at the lowest level since January 2019, so giving up the roughly $4 discount per barrel on Russian supplies would not cause too much domestic pain at current prices.
Yet India has a lot more besides oil to lose from giving Russia the cold shoulder. The duo’s longstanding relationship may be undergoing a managed decline as New Delhi diversifies its weapons supplies, but Moscow remains a reliable partner to India and relations with the country buttress its multipolar foreign policy. Trump’s decision to work with Pakistan to develop its oil reserves, and his subsequent taunt that it perhaps will sell oil to neighbouring India one day, further underscore why New Delhi may always keep some distance from Washington.
India can perhaps afford to wait and see what the U.S. agrees with China. Beijing has vowed to protect its energy sovereignty in response to similar U.S. threats over Russian oil purchases. That poses a major obstacle for Trump to strike any grand bargain with the world’s second-largest economy. Ultimately the U.S. may see value in preserving a warm relationship with India as a counterbalance to China. The wait, however, will be awkward.
Editing by Antony Currie; Production by Aditya Srivastav
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