President Donald Trump has proudly announced a trade deal with Prime Minister Narenda Modi of India.
While there’s nothing yet in writing – our president continues his frustrating habit of announcing deals days or weeks before the details are available for study – the highlights that they’ve released so far give cause for great optimism.
The Announcement
In the past year, President Trump has implemented two punitive import tariffs on the products of India, in addition to the normal duties already in place when he arrived.
First, there was the reciprocal tariff for India (a response to our general trade deficit with India, plus India’s own import tariff and tax burden on imports from the USA, plus India’s many non-tariff barriers against imported goods), which was set at 25% on all Indian goods.
Then, second, as India began serving as a willing go-between for transshipment of Russian oil (agreeing to sell imported oil from Russia to other countries that had publicly agreed to resist Russian oil), he levied another 25% on all Indian goods.
In this agreement, India will drop its existing duties on American goods, stop serving as Russia’s oil middleman, drop its non-tariff barriers on American goods, and increase its major purchases of American food, energy and technology by a half-trillion dollars.
In response, the U.S. will drop the punitive 25% driven by the oil issue, and we will reduce our 25% reciprocal to just 18%.
So when the dust settles, we will still assess our normal duties on Indian goods, just not as much of our recent punitive ones, and India will drop their import duties to zero and reduce other obstacles too, stop helping to prop up Russia’s war machine, and buy lots of stuff from America.
Assuming it all works out as announced, this is indeed a great deal.
The Art of the Deal
This India deal is yet another example of the way that the Trump administration is using import tariffs, not as a government-funding source as taxes usually are, but as a cudgel for foreign policy in areas where diplomacy has failed.
The United States spent decades funding the United Nations, propping up NATO, and inviting the world’s diplomats to state dinners, while receiving nothing for the effort but more grubbers looking for handouts, and more foreign wars that we were expected to fund.
President Trump’s team looked, for example, at the sanctions on Iran and Russia that we had diplomatically convinced Europe to agree to, and then saw that in practice, those very same countries that voted for these sanctions kept right on buying energy from them – as official government policy – propping up not just our enemies, but their own enemies.
Such utterly counter-productive policy never made any sense. For diplomacy to work, it requires some self-awareness on each side, and there is still no solid evidence that the Germans, for example, even realize that that fighting Russia by arming Ukraine while simultaneously funding Russia by being completely dependent on Russian oil is inherently imbecilic.
So, the Trump team decided to try using tariffs instead, and it has been proven to work.
Other world leaders throughout history have gone to war, or sent diplomats, or issued economic sanctions; the Trump administration has found that substantial tariffs are more effective than any of these others, and much quicker-acting.
The Effects
There are a number of obvious beneficiaries of this deal.
American importers of Indian goods will now bear a much lower tariff burden than they’ve borne these past several months, with a drop from 50% over the normal duties to just 18% over the normal duties – and American exporters will enjoy more Indian customers, newly flush with cash, with at least some of their protectionist nation’s traditional obstacles removed ...
... so the converse is also true: Indian exporters benefit from increased sales to the U.S. - and Indian customers will benefit from lower-cost and hopefully easier importation of the American-made goods they want. Win-win.
Ukraine benefits from an eventually poorer Russian enemy. No matter what Prime Minister Modi promised, it will take weeks, perhaps even months, to fully wind down India’s purchases of Russian oil. But the fact that an end is on the horizon simply has to affect Russia’s planning; as Russia sees its major funding source evaporating in the near future, this should increase Russia’s interest in finding some face-saving compromise at the Russia-Ukraine War negotiations table.
Some of the beneficiaries may not be quite as obvious:
The United States is already India’s biggest trading partner. This deal, and the increased trade certain to follow it, further strengthens the economic ties between the world’s two most populous English-speaking republics.
The United States has long tried to encourage the American business sector to decouple from China in its supply chain needs; India should be a natural recipient of such business. While India still has some negatives, such as regulatory prejudice against foreign companies and genuine problems of counterfeiting and origin fraud, these risks are low and manageable by comparison to the rampant intellectual property theft, currency manipulation, export dumping policies and CC
P military involvement that permeate the Chinese manufacturing sector. Any growth in America’s relationship with India is a blow to China.
India’s turn toward Russia and the BRICS alliance during the Biden-Harris years made it seem like the days of American economic dominance were behind us; this deal shows that America’s global economic leadership is anything but over.
The President’s tariff policies are lying on a desk somewhere in the Supreme Court, as nine justices and their staffs try to come to agreement on how to judge the IEEPA cases. On the one hand, they must try to interpret differing opinions of imprecisely worded Congressional action and the Constitution; on the other hand, they cannot help but see the successes that the Trump administration has had in using tariffs this way. Every negotiation concluded so favorably, resting on the president’s tariff-setting power as its foundation, must strengthen the president’s case, at least in the public eye. And while the Court may not want to consider such externals, they cannot help but see and appreciate them.
One of the U.S.’s biggest concerns – and rightly so – is continued massive immigration from the third world. While we welcome the best immigrants from anywhere – in numbers that permit assimilation – we must never again allow the massive, unassimilable influx that we suffered in recent years. Helping populous foreign countries to prosper, through mutually beneficial trade deals, is the best way to keep our own borders manageable; a growing foreign economy has less likelihood of exporting desperate, starving millions in search of greener pastures.
None of this is to say that there aren’t losers, too.
In any negotiation, someone on both sides must suffer. In the United States, companies dependent on Indian vendors for their components, materials, or finished goods have suffered a significant increase in purchasing costs until now; such unpredictability in cost management hurts both sales and bottom-line profits.
But someone loses from the alternative as well. Without this deal, and the high American tariffs that made it possible, Russia would be richer and better able to pummel Ukraine longer. China would have less competition and could continue to abuse both its own people and its global customers, as they always do. And the United States’ manufacturing and consumer purchasing sectors
The deal is a good one, and in some ways, it may flip the script at an important time. Congratulations are due, not only for the execution of a good deal, but for amazing innovation in foreign policy.
One year in, the Trump administration continues to amaze and inspire.
John F. Di Leo is a Chicagoland-based international transportation manager, trade compliance trainer, consultant and public speaker.
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