Modi-Trump Embrace Carries High Tariff’s And Trade

US President Donald Trump and Indian Prime Minister Narendra Modi met in Washington on Thursday to iron out differences in the larger interest of Indo-American relations. Strong Indo-US relations are a critical necessity for both India and the US given their adversarial relations with the common challenger China.

The optics at the White House parleys were excellent. The two leaders shook hands and hugged each other before they addressed the international press at the White House immediately before holding bilateral talks.

"I appreciate how President Trump always keeps his country first. I do the same - that is something that we have in common," Modi said. And complementing Modi, Trump said: "He is doing a great job in India and he and I share a great friendship. We will continue to build on ties between our nations."

Trump emphasized that the US and India have a “great friendship” and added that he thought that “it’s only going to get closer”.

The fact that Modi’s party the Bharatiya Janata Party (BJP) had swept the Delhi elections only a few days before, would have enhanced his profile in the Trump camp and boost his efforts to “deepen the India-US partnership” in key areas such as technology, trade, defence and energy as sought by Modi.

Trump offered to sell state-of-the-art fighter jets to India as he and Modi vowed to ramp up trade, rekindling a bond that defies the new US administration’s punitive approach to much of the world. Trump said that he found a “special bond” with Modi and India and, in an uncharacteristic, if ironic show of humility, complimented Modi as being a “much tougher negotiator” than he is.

Modi said that the US and India are targeting US$ 500 billion bilateral trade by 2030. He further said that the US and India would work together on Artificial Intelligence and semiconductors and focus on establishing strong supply chains for strategic minerals. Trump said that he expected “wonderful trade deals” and noted that India is reforming its laws to welcome US nuclear technologies.

Modi would have to give his nod to a significant hike in American tariffs on imports from India and lower Indian tariffs on US goods coming to India to narrow the significant trade gap now in favour of India.

The Indo-U.S. goods and services trade totalled around US$ 190.1 billion in 2023. US exports to India were worth US$70 billion and imports US$120 billion. The US is India’s largest trade partner, but the two countries have a trade deficit of US$ 50 billion which is in India’s favour.

Even as he referred to Modi as a “great friend,” Trump on Thursday signed increases on tariffs to match the tax rates that other countries, including India, charge on imports. Earlier, Trump had indicated that he was going to be hard on India which he called a “Tariff King.” He said: “India is a very hard place to do business because of the tariffs. They have the highest tariffs.”

Indeed, among Asian economies, India has a 9.5% weighted average effective tariff on US exports, while there is a 3% rate on India's exports to the US. Thailand has a 6.2% rate and China a 7.1% rate on US products.

Trump has already signed a round of what he called “reciprocal tariffs” to create a level playing field between US manufacturers and foreign competitors. He slapped 25% tariffs on steel and aluminium imports, to boost local production. The 25% tariff applies to India too. India is not a particularly large supplier of steel to the US, but it is one of the world's largest primary producers of aluminium and America is its top export market. India’s aluminium exports to the US, therefore, could see a drop.

India has no option but to grin and bear the tariff hikes. One way to cushion itself against the US tariff blows is to enter into a broad trade agreement with the US. India and the US are working to finalise such an agreement by the end of 2025.

A trade agreement, appropriately packaged, will enable India to sell to the Indian public the idea of paying high tariffs in the US and charge less on imports from the US.

Anticipating Trump’s moves, in February, India slashed custom duties on import of American products, such as high-end motorcycles and cars, and smartphone components, in a move that is expected to benefit American corporate giants like Harley-Davidson, Tesla, and Apple. In 2023 itself India had dropped retaliatory tariffs on US almonds, apples, chickpeas, lentils and walnuts.

More recently, India allowed US-based General Electric to partner with India-based Hindustan Aeronautics Ltd, to produce jet engines for Indian aircraft in India itself, and the sale of US-made armed MQ-9B SeaGuardian drones.

Prior to meeting with Trump, Modi had met Elon Musk, the SpaceX founder and top Trump administration official. It is expected that Musk’s Starlink satellite system for transmitting commercial programmes, will be allowed to operate in India. Earlier, India had feared that Starlink might compromise India’s security.

Earlier, in a move that would help Modi and his protégé billionaire businessman Gautam Adani, Trump signed an Executive Order directing the Department of Justice (DoJ) to pause enforcing the Foreign Corrupt Practices Act (FCPA) that prohibits American companies and foreign firms from bribing officials of foreign governments to obtain or retain business. Under the Biden administration Gautam Adani and his company were charged with paying US investors’ money, US$ 265 million as bribes to Indian officials to secure solar power contracts.

This charge may now be dropped as Trump has paused actions based on FCPA. About FCPA Trump said: “It sounds good, but it hurts the country.” If FCPA is strictly enforced, US companies may not be able to do business in the Global South.

It is widely known that the Biden administration did not favour Modi because of his bonhomie with Russian President Putin. Adani suffered on account of this when he was indicted in a US court for alleged bribery. Trump is now trying to negotiate a deal with Putin to end the war in Ukraine and save money for the US. And Modi has always been calling for an end to the war. This convergence of interest has led to Adani getting off the hook. To suit Trump, Adani has announced a plan to invest billions in the US.

Illegal immigration is a key political issue bedevilling Indo-US relations since Trump came to power. The US says that there are 700,000 illegal Indian immigrants in the US. Recently, 104 of them were bound hand and foot, piled into a military aircraft and flown to India. The video footage of these poor Indians spoiled the image of America in Indian eyes. And the Modi government was seen as weak-kneed in its response to the US action.

Getting the US to take a more humanistic approach to this issue would have been one of the aims of Modi’s talks with Trump. But to help Trump, India has already said that it will take back verified citizens of India though it insists that the number of illegals is only about 470.

Modi would have made a pitch for maintaining the H-1B visa regime, a cause dear to India’s burgeoning middle class. Sections of the US right wing are against these visas.

For the Trump administration, India is an integral to the US strategy of containing China in the Indo-Pacific. India will be hosting a summit of Quad made up of the US, India, Japan and Australia later this year.

The US had declared China as the strategic competitor in its Indo-Pacific Strategy (IPS-2022) in February 2022, and simultaneously designated India as its strategic partner and counterweight to China. Ever since, India is being granted exceptionalism and preferential treatment to enhance its technological and military potential against China. The USA not only granted an unprecedented CAATSA waiver to India for purchasing S-400 from Russia but also facilitated access to the Nuclear Suppliers Group (NSG).

The US had entered into 123 civil nuclear agreement besides exporting niche military capabilities to India and concluded a number of military agreements including General Security of Military Information Agreement (GSOMIA); Logistic Support Agreement (LSA); Communications and Information Security Memorandum of Agreement (CISMOA) and the Basic Exchange and Cooperation Agreement for Geospatial Intelligence (BECA) with India.

Modi would like Trump greater substance to these agreements and also see that US products are not prohibitively priced.

During the Biden era in 2022, the Initiative on Critical and Emerging Technologies (iCET) was launched. iCET is meant to be directly overseen by the two national security advisers - to avoid getting bogged down in bureaucracy - which means they must each be personally invested in it. Modi would have sought assurances from Trump and his National Security Adviser Mike Waltz that they would remain committed to this.

In a blow to Pakistan, Trump approved Tahawwur Rana’s extradition to India. Rana, a Pakistani, had masterminded the Mumbai terrorist attack.

“I am pleased to announce that my administration has approved the extradition of one of the plotters (Tahawwur Rana) and one of the very evil people of the world, having to do with the horrific 2008 Mumbai terrorist attack to face justice in India. He is going back to India to face justice,” Trump said.