By Satya Narayan Misra* in Bhubaneswar, August 4, 2025: Even the worst of Modi’s critics had not bargained for the kind of tariff (25%) imposed by Trump on India on the ‘Reconsideration Day’ on 1st August. In particular, the way he has differentiated India vis a vis its competitors and given special concession to countries of EU, who contribute significantly (24%) to huge trade deficit of around $1 trillion and Japan is both baffling and beguiling.

The following table would show the tariff announced by him on the liberation day (April 2) and day of reconsideration, 4 months later (August 2nd). The jury is still not out on China, which contributes 30% of US trade deficit, and Jin Ping dared to retaliate Trump on tariffs.

Country                            Tariff  on 2nd April             on 2nd August 

Vietnam                                                46%                                         20%
Bangladesh                                           37%                                         20%
Thailand                                                36%                                        20%
India                                                       26%                                        25%
EU                                                           20%                                        15%
Japan                                                      24%                                        15%

Reasons for Differentiated Approach

Countries like Thailand and Vietnam, whose economies depend heavily on exports to USA immediately capitulated and all the countries whose tariff rates have been slashed gave sweeping concession to the USA in terms of Zero tariff on US farm goods, massive investment pledges and most importantly purchase US oil. On the contrary, India’s continued oil purchase from Russia in lieu of USA has been a ‘massive point of irritation’ for Trump. It may be recalled that the USA has undergone a significant transformation in its oil trade dynamics, evolving from a major importer in the 70s to a significant exporter of crude oil ($118 B).

While India imports 30% of its crude needs from Russia as against 6% from USA. USA is also miffed with India for sourcing S-400, a highly potent mobile surface–to air missile system, which came very handy in repulsing the drone attacks from Pakistan in OP Sindoor. Trump has been pestering Mr Modi for buying stealth aircrafts. On the contrary, India is keeping its option open with Russia with whom it had signed a Design & Development Contract for a FGFA (Fifth Generation Fighter Aircraft) in 2009. Mr Modi’s de hyphenated acquisition policy (keeping USA & Russia as equal options) seems to be at the heart of Trump’s anti India stand.

Implication for India

Of India’s total exports of $ 824.9 B during 2024-25, exports to USA constitutes $86.5 B (10.7%), with a few items like textiles and apparels and gems and jewellery accounting for $ 10 billion each. India’s trade surplus with USA has been increasing from $22.7 B in 2021 to $40.88 b in 2024- 25), a trend that Trump is unhappy with. As per Global Research Imitative (GTRI), a think tank based in New Delhi, India’s exports to USA may fall by 30% to $60.6 B with 25% tariff. This would shave off .2% from the GDP growth forecast of 6.2% during FY 2025-26 as exports to USA accounts for 2.2% of GDP. The sector which is likely to be hit badly is textiles and apparels, which are the second largest employment generator, with 80% spread across MSME clusters around the country.

With exports from competitors like Vietnam, Bangladesh and Cambodia to the USA attracting lower tariffs, the Chairman, AEPC apprehends that there will be massive layoffs among export segment in textiles & apparel. On the other hand, India’s export of electronics and electrical equipment to the USA which witnessed a significant surge in 2024-25 at $14.4 billion is unlikely to be affected as they are exempt from any tariff. As per Clause 4 of S 232 of Trade Productivity Expansion Act 1962, the President can restrict imports that threaten security of USA. This is unlikely to be invoked in electronic items from India to the USA.

Trump’s Ruinous New Order

When Trump triumphantly declared reciprocal tariff as ‘liberation day’ for America, the Economist in an editorial called it the ‘Ruination Day’. The reasons are not far to fathom as Trump was abandoning world’s trade order in which USA was the main architect of rules for fostering free trade. While Trump seeks to make USA a manufacturing hub, the game of reciprocal tariff will ensure that the consumers will pay more, have less choice, with inflation ticking in. The Economist had a foreboding that Trump’s foolhardiness will not triumph. Instead of using the power of persuasion, which Joseph Nye called ‘America’s soft power, Trump, the business man and the bully adapted the ‘hard power ‘of coercion, which has limited power of success in the global landscape.

India’s Policy Options

He has indeed come down from the high horse for many countries from EU, UK, Japan & South East Asia. Surprisingly he has become very bellicose towards India, possibly because of our open door policy towards Russia. India does not have to give up its de-hyphenated foreign policy, be it buying oil or acquiring a major weapon system or platform it must make an informed choice, in terms of cost, effectiveness and dependability. Russia has been a trusted partner from the 60s when it went in for a slew of technology transfers in terms of fighter aircrafts, frigates or tanks. Unlike the USA which threatened to bully India by sending Seventh Fleet in 1971 to intimidate India during its war with Pakistan, Russia stood by us then and during OP Sindoor.

Prof Ashok Gulati believes that India must transit from tariff based protectionism to productivity driven competitiveness, build an export and technology hub for global value chains We must also identify our constraints for export competitiveness, WE must go for export diversification and give targeted support for affected exporters as in the textile and apparel segment. Indian has suffered depreciation to dollar, because of the new tariff dispensation from the USA. That must be contained, so that the rupee does not slide below Rs 88 to a dollar. Given the fact that exports will suffer a dent, the monetary policy must cushion the impact, by reducing cost of credit, and boosting domestic demand. The time for ‘Make for India’, besides Make in India has assumed priority in the backdrop of an uncertain policy mosaic of the USA.

*Professor Emeritus, KIIT University, Bhubaneswar