| It’s like a scene out of The Apprentice, but with a new catchphrase: “You’re tariffed!” In this real-life episode, Indian Prime Minister Narendra Modi has 21 days to win back US President Donald Trump’s favor. Failing which, Indian exports — hobbled by a doubling of the tariff to 50% — will effectively be locked out of the world’s largest consumer market. Trump’s additional 25% tariff places India among the most heavily taxed US trading partners and puts its $86.5 billion in exports at a disadvantage to rivals such as China, Vietnam and Bangladesh. It may appear that the US has the upper hand for now, but if this trade standoff persists the real winner will be China. How did we get here? Partly due to a failure of Indian diplomacy — first, to strike a trade deal and now in staving off an additional tariff. Indian officials and experts may be right to describe Trump as a “bully” and “unreasonable” on grounds that others like the EU and China are also buying Russian goods but have been spared additional tariffs. But the EU is a close ally of the US and China has considerable leverage such as control over critical rare earth materials. India is a patsy for a US president whose self-serving approach has long been clear, and who has spared no one. Not even one of his biggest donors, Elon Musk. It’s naive then of India to expect its long-standing relationship with Russia would score over Trump’s insistence on a Ukraine truce. “This White House wants homage, not defiance,” Bloomberg Opinion’s Mihir Sharma put it bluntly in his column. The US’s closest allies — the UK, EU and Japan — played to that and secured deals with lower tariffs. Modi hasn’t. That’s the other reason for India’s trade woes. Modi’s carefully crafted strongman image and jingoistic followers make any trade or political compromise difficult, if not impossible. Opposition parties and media haven’t helped by framing every trade concession as a political loss instead of viewing US market access as an economic win. And arguments that India should closely align with China ignore border hostilities and the country’s manufacturing overcapacities. It should have never come to this. Yes, India has much to protect in agriculture and small industries. But engineering, electronics, pharmaceuticals, textiles, gems and jewelry are all high-employment sectors that need access to the US. Not to forget IT services — which may not yet be in the ambit of trade talks but is a bargaining chip waiting to be deployed given that top Indian outsourcers draw up to 40% of their revenue from North America. What happens next? The rupee will hurt but stock investors, local and foreign, seem relatively sanguine. Indian exports to the US are less than 3% of the country’s GDP and its 6-7% forecast growth over the next several years is driven far more by domestic factors like demographics, urbanization, formalization and digitalization, Kevin Carter, founder and chief investment officer at EMQQ Global, a San Francisco-based investment management and research firm, said to me over email. That forecast could take a significant knock. Assuming a 25% levy on temporarily exempt sectors like pharmaceuticals and electronics, the overall hit to India’s GDP growth could be about 1.1% over the medium term, according to preliminary estimates by Bloomberg Economics. Meanwhile, the Modi government is scrambling to find ways to support impacted Indian exporters, my colleagues in Delhi report. Can it do that without blowing up the national budget? And for how long? What if Trump were to raise the stakes again? Or take umbrage with Modi’s month-end visit to the Shanghai Cooperation Organization summit? Especially if it precedes a US-China trade deal or leads to more BRICS coordination. Even at 50% there’s a certain denialism in the air in India of the impending crisis. Foreign policy and trade experts assert India should not pick sides between the US and Russia and must remain steadfast to its doctrine of strategic autonomy — a modern day avatar of nonalignment, the idea born long before the country started competing with China to supply iPhones to the US. Business leaders are beating the same old drum of how crisis presents opportunity for reform, even though the government remains unmoved. The longer an India-US deal pends, the tougher Trump may be to please and the larger India’s concessions may have to be. The US president, on the other hand, would do well to remember that enfeebling India and courting Pakistan only makes China — and by some extension Russia — stronger. If he won’t yield, then maybe it's time for Modi to be the adult in the room. | 
