Bombay bad boy: 50% Trump tariff seeks to punish India for buying Russian oil and weapons

Today, a US tariff of 50% takes effect on Indian goods, 25% of which is a penalty for India’s trade with Russia. 

Since 2022, India has capitalised on western tariffs against Russia, sharply increasing its purchase of cheap Russian goods therefore ‘fuelling Russia’s war machine’ as put by Donald Trump.

India-Russia bilateral trade since 2017:

Since 2022, Indian imports from Russia have increased by over 750% at their peak in May of last year. Source: OEC

Despite the US’ response, India shows no signs of letting up on its trade with Russia. Prime Minister Modi has stated that India is prepared to ‘pay a very heavy price’ to maintain their trade policies without US interference. 

Modi has since been ‘ignoring’ Trump’s calls on the matter, refusing to take calls with the US President on 4 occasions. 

This adds significant instability into the Indian economy as the US remains their largest trading partner, making up almost 20% of their total trade. 

While some may argue that this is offset because it allows India to preserve their trade relationship with Russia, that relationship is only a third of the size, so the broader strains on India’s economy remain substantial.

In order to mitigate disruption to the country’s export-driven industries, Modi plans to cut taxes in what is branded as a ‘massive tax bonanza’. 

Cutting taxes is likely to ease the pressure of slowing business and rising costs as both consumers and businesses have more to spend and invest respectively.

Furthermore, by using fiscal policy to combat the woes that may ensue from ‘Trump Tariffs’, Modi opens the door to alternatives such government subsidies or interest rate changes in order to keep the economy ticking over. 

The India government already has the groundwork in place for these alternatives as they have been implementing incentives for domestic production over recent years.

On top of this, Modi appears to be embracing the Canadian approach of tapping into patriotism by asking Indian consumers and businesses to buy and make locally. 

The Indian PM appeared to express desire to take steps in the direction of an autarky (an economy that is self-sufficient without reliance on international trade) as he said the following: 

‘We should become self-reliant - not out of desperation, but out of pride [..] economic selfishness is on the rise globally and we mustn't sit and cry about our difficulties, we must rise above and not allow others to hold us in their clutches.’

This also marks a shift in India’s geopolitical footing.

Where it has previously enjoyed acting as a sort of ‘middle-man’ or neutral power (for example by buying Russian oil and selling it to the West), under Modi and the threat of tariffs, India now appears to be cementing its alignment with the East.