Tariff Diplomacy: A New Front in India–U.S. Bilateral Relations

1. Tariff Escalation to 50%: The US has imposed a total of 50% tariffs on Indian goods (August 2025), the highest for any country, drastically impacting bilateral trade worth $131.84 billion (FY 2024–25).
2. Shift from Strategic to Transactional Approach: The US, under President Trump, has moved from strategic engagement (e.g., QUAD cooperation, defence pacts) to hard bargaining focused on trade deficits and political compliance.
3. Collapse of Trade Talks Momentum: The long-pending Bilateral Trade Agreement (BTA) negotiations have stalled, as coercive tariff tactics override mutual trust-building efforts.
4. India’s Measured Response: The Indian Ministry of Commerce described the move as “unfair, unjustified, and unreasonable,” yet avoided retaliatory measures, aiming to keep communication channels open.
5. Sectoral Vulnerabilities Create Tensions: Export sectors like textiles, gems & jewellery, and chemicals, worth $8 billion, are disproportionately affected, sparking concern among Indian industries and exporters.
6. US Trade Deficit Politics: India’s trade surplus with the US stood at $45.7 billion in 2024, which the Trump administration cites as a reason for tariff hikes, disregarding broader economic interdependence.
7. Policy Asymmetry Grows: While India is liberalising through FTAs with the UK and EU, the US is adopting protectionist measures, increasing strategic incoherence between the two partners.
8. Trust Deficit Widens: The tariff war risks damaging long-term cooperation on critical fronts like semiconductors, clean energy, and defense, weakening the strategic depth of India-US relations.

Economic Diplomacy Dimension

1. Tariffs as Backdoor Sanctions: The US’s 50% tariff mimics economic sanctions, targeting India’s continued trade with Russia without invoking formal sanctions.
2. Undermining Multilateral Trade Norms: The US justifies its tariffs under “national security” clauses, bypassing WTO protocols, raising concerns of unilateralism.
3. India’s Diversification Push: India is accelerating trade diversification toward EU, ASEAN, and Africa to reduce reliance on US markets.
4. FTA Strategy in Motion: India is actively negotiating FTAs with the EU and UK, aiming to secure tariff-free access and hedge against US protectionism.
5. Export Competitiveness via Atmanirbhar Bharat: Schemes like PLI (Production-Linked Incentives) are being ramped up to boost self-reliance and global competitiveness.
6. Diplomatic Channels for Damage Control: India is using quiet backchannel diplomacy and economic forums like IPEF and QUAD to de-escalate tensions.
7. Short-Term Impact on Exports: Sectors like pharma, textiles, and IT may face near-term losses, with India’s exports to the US valued at $78.5 billion (FY2024).

International Legal & Institutional Dimension

1. National Security Loophole Exploitation: The US invokes national security to justify tariffs—a gray area under WTO law, yet increasingly misused.
2. WTO Dispute Mechanism in Paralysis: The WTO Appellate Body has been defunct since 2019 due to US blockage, denying India legal recourse.
3. India’s WTO Complaint Strategy: India may still file a formal complaint, as it has done in past trade disputes with the US (e.g., solar panels, steel tariffs).
4. Need for WTO Reform: The situation underscores India’s advocacy for restoring the dispute settlement system and reforming global trade rules.
5. Multilateral Alliances as a Legal Hedge: India is engaging in plurilateral groupings like G-33, BRICS, and the Global South to create collective pressure.
6. Strategic Use of Retaliatory Tariffs: India may impose calibrated counter-tariffs, as it did in 2019 post-US steel/aluminum tariff hike, aligning with WTO principles.
7. Erosion of the Rules-Based Order: The episode reflects a growing breakdown of post-WWII trade architecture, with middle powers like India most vulnerable.

US Domestic Politics Dimension

1. Election-Year Populism: Tariff announcements are often timed with election cycles, aimed at appealing to protectionist and nationalist voter bases.
2. Targeting Swing States: Sectors affected by trade (like manufacturing) are crucial in swing states, influencing trade policy rhetoric.
3. “America First” Redux: Trump revives his core narrative of economic nationalism, portraying trade as a zero-sum game.
4. India as a Visible Target: As a rising economy with a trade surplus with the US, India becomes a symbolic target to show ‘toughness’.
5. Bipartisan Trade Skepticism: Even beyond Trump, skepticism of trade deals and globalisation has bipartisan support in the US.
6. Appeasement of Domestic Industries: Tariffs aim to placate domestic lobbies, such as steel or pharmaceuticals, which see India as a competitor.
7. Erosion of Multilateralism: US politics increasingly favour bilateral hard-bargaining over multilateral cooperation, straining WTO frameworks.

Strategic Autonomy & Foreign Policy Doctrine

1. Non-Alignment 2.0: India reaffirms its stance of multi-alignment, avoiding entanglement in any one bloc’s geopolitical rivalry.
2. Issue-Based Alliances: India selectively partners with countries based on strategic interests, not ideological alignment (e.g., Quad, BRICS, SCO).
3. Recalibrating Doctrine: Current events push India to redefine its foreign policy doctrine to better assert its strategic interests.
4. Strengthening Regional Influence: Active role in IPEF, IMEC, BIMSTEC reflects India’s desire to lead in the Indo-Pacific.
5. Strategic Decoupling Management: India must navigate pressures to decouple from adversarial powers while securing national interest.
6. Assertive Economic Diplomacy: Shifting from reactive to proactive stance in trade negotiations and strategic communication.
7. Balancing Major Powers: India aims to deepen ties with EU, Japan, ASEAN to offset US volatility and Chinese assertiveness.

Global South and Multipolar World Order

1. Tariffs as Precedent: US coercive economic actions signal risks for developing nations with independent trade policies.
2. India’s Role as Spokesperson: India, with its G20 leadership and South-South cooperation history, must amplify Global South concerns.
3. Shift to Power-Centric Order: Incidents show decline of norms-based multilateralism and rise of transactional, interest-driven geopolitics.
4. Risk of Neo-Colonialism: Tariff threats resemble coercive tools used to maintain dominance over emerging economies.
5. Promoting South-South Trade: Strengthening ties within the Global South could reduce vulnerability to great power coercion.
6. Championing WTO Reform: India must push for democratization and revival of global institutions for fairer trade dispute resolution.
7. Multipolarity as Shield: A robust multipolar order with diverse partnerships can buffer smaller nations against economic bullying.

Supply Chains and Strategic Partnerships

1. India as China+1 Option: US companies increasingly view India as an alternative to overdependence on China.
2. Tariffs Disrupt Confidence: Protectionist measures contradict Washington’s goal of building resilient supply chains with India.
3. Semiconductor & Tech Setback: Collaborations in chip manufacturing, AI, and clean tech may suffer due to mistrust.
4. Energy and Climate Tech: Tariff tensions could delay joint clean energy initiatives like solar, hydrogen, and battery storage.
5. Investment Rethink: American investors may perceive India as risky if bilateral ties remain unstable.
6. Decoupling Backfire: Punitive tariffs risk pushing India closer to other major powers like the EU, Russia, or China.
7. Supply Chain Resilience Loss: US weakens the very alliances it needs for resilient, diversified global supply chains.

Soft Power and Perception Management

1. Trust Deficit: Tariff threats create doubts about US reliability as a stable long-term partner for India.
2. Narrative Control Battle: India and the US both vie to shape global opinion—whether tariffs are coercion or policy.
3. Investor Communication: India must reassure global investors that it remains committed to open, rules-based trade.
4. Diaspora Dynamics: US-India people-to-people ties may suffer from political rhetoric impacting perceptions.
5. Public Diplomacy Leverage: India should amplify its soft power through culture, technology, and democratic values amid tension.
6. Framing the Dispute: India must frame its position as principled and cooperative, not defensive, to global audiences.
7. Global South Sympathy: India can rally diplomatic support by aligning with nations affected by similar US trade actions.

Conclusion

The US’s imposition of steep tariffs on Indian goods marks a critical turning point in bilateral relations, exposing the fragility of strategic partnerships in an era of transactional diplomacy. While the move reflects Washington’s shifting geopolitical priorities and domestic political compulsions, it also underscores India’s urgent need to recalibrate its foreign policy and trade doctrine. For New Delhi, the challenge lies in maintaining strategic autonomy without isolating key partners, especially as it aspires to lead the Global South and shape a multipolar world order. With high stakes for exports, supply chains, and global perception, India must respond with calibrated diplomacy, deeper regional integration, and assertive multilateral engagement to protect its economic interests and geopolitical standing.

Prelims Questions