Trade shock demands a resolute response

With a 25 per cent tariff shock and fresh FTA pressures, Trump’s aggressive trade agenda threatens Indian agriculture, exports, and the rupee. “Earlier, trade followed politics; now, politics follows trade.” This quote aptly captures the shifting sands of the India-US relationship, where economic interests increasingly dictate diplomatic alignments. The latest salvo in this high-stakes game came from U.S. President Donald Trump, who announced a 25 per cent tariff and penalties on Indian imports, sending shockwaves through both economies.

Trump’s announcement, posted on Truth Social, was blunt: starting August 1, Indian goods entering the U.S. would face a steep 25 per cent tariff, plus additional penalties for India’s continued crude oil purchases from Russia and its “unfair trade barriers.” He accused India of being the “highest-taxing nation in the world” and reiterated his long-standing criticism of India’s trade practices. While calling India a “friend,” his tone and policies spoke otherwise. At the heart of this tension is the stalled India-US Free Trade Agreement (FTA).

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Once described by Trump as a “very big trade deal,” the FTA has become a symbol of imbalance, with India being pushed to open its markets to heavily subsidized American products while receiving few concessions in return. Indian agriculture is the most threatened sector under Trump’s renewed tariff and trade agenda. The U.S. dairy industry alone receives about $12 billion in annual subsidies. With tariff barriers lowered, American whey powder, skim milk, and cheddar cheese could flood Indian markets at prices local farmers can’t compete with. While U.S. cheddar sells for Rs 300/kg, Indian producers need at least Rs 475 to break even.

Over 75 million Indians involved in dairy could face economic ruin. The cultural clash deepens this divide. Many U.S. dairy products are made using rennet, an enzyme derived from slaughtered calves, and cattle feed often contains animal by-products – both violate Indian religious sentiments. Any attempt to allow such imports would trigger social unrest, adding to the economic shock. India also faces a soybean tsunami. Following the U.S.-China trade war, over 46 million tonnes of American soybeans piled up. Now, India is being eyed as the next dumping ground.

If allowed, this would devastate Indian farmers growing mustard, groundnut, sesame, and other oilseeds integral to local agricultural systems. Corn (maize) too is under siege. The U.S., as the world’s largest corn exporter, seeks to push surplus maize into India. Indian industries – poultry, ethanol, starch – rely on domestic maize. Cheaper U.S. imports would wreck cultivation hubs in Bihar, Madhya Pradesh, Andhra Pradesh, and Karnataka. The poultry industry faces its own nightmare. The U.S. exports parts of chicken discarded by American consumers – legs, thighs, and wings – at dirtcheap prices. Since India lost a WTO dispute in 2018, limited imports began. But an FTA could open the floodgates, devastating Indian poultry farms already grappling with high feed costs.

Ironically, that feed – corn and soy – is subsidized, so the damage would reverberate back to Indian crop farmers. Even pulses, where India achieved near self-sufficiency, are at risk. In 2023, after import duties were slashed, pulse imports nearly doubled – from 2.45 to 4.5 million tonnes. This jeopardized decades of investment and awareness campaigns to promote domestic cultivation of tur, urad, and moong. Further tariff cuts would unravel these gains. In horticulture, the story repeats. When India halved duties on U.S. apples, imports surged 16-fold. American apples, with longer shelf life and global distribution, are outselling local varieties from Himachal Pradesh and Kashmir in urban markets. Small orchard owners, lacking cold chains, are losing out.

Even cotton, a sector where India leads globally, is being undermined. Subsidized American cotton, supported by price guarantees and export incentives, enters Indian mills, pushing down prices. The deeper threat is genetic. Along with American cotton comes the push for seed patents and biotech enforcement – moves that could destroy India’s traditional seed systems and force farmers into annual seed purchases from multinational corporations. Trump’s tariffs are part of a broader, unapologetically transactional trade philosophy. He demands that allies comply with U.S. interests – or pay. India’s defense ties with Russia and its discounted oil imports have angered Washington.

In fact, a U.S. Senate bill proposes a staggering 500 per cent tariff on nations like India and China that continue to import Russian crude. Though likely to be watered down to 100 per cent, the message is clear: loyalty to U.S. policy is now an economic imperative. Markets have already reacted. The Indian rupee has taken a hit, falling by 89 paise in a single day, touching Rs 87.80 to the U.S. dollar – a near-record low. For the first time since March, the rupee breached the Rs 87 mark. Economists warn that the rupee could slide to Rs 88-90 in the coming months if exports shrink and imports rise – a dangerous double whammy.

The Reserve Bank of India (RBI) has hinted at the end of its interest rate cuts, citing inflation and industrial weakness. Major Indian banks are reporting rising bad loans, and corporate earnings are under pressure. IT giants like TCS are downsizing by thousands, a worrying sign given how integral the software sector has been to India’s export story. The lesson is clear: while trade deals can offer opportunity, blind enthusiasm could cost India dearly. The FTA with the U.S., if signed on Washington’s terms, could devastate local industries, displace millions of rural livelihoods, and hollow out India’s agricultural sovereignty. This is not just an economic debate-it’s a political one.

The Prime Minister’s image as a strong, strategic leader is now being tested. The decisions he makes could shape India’s trade, economy, and food systems for decades. The time has come not to romanticize foreign friendships but to negotiate from a position of strength, fairness, and foresight. After all, a nation’s sovereignty isn’t just about borders – it’s also about seeds, milk, food, and the dignity of its farmers. “Trade is the mirror of power,” wrote historian Paul Kennedy. India must remember this as it prepares to negotiate with a transactional superpower once again.

(The writer is Professor, School of International Studies and Social Sciences, Pondicherry Central University.)