With Trump, you expect the unexpected

At some stage we are going to ask ourselves: is MAGA turning into MIPA?

Is the progress of Donald Trump’s Make America Great Again programme resulting in Make India Poor Again?

 

It’s the kind of question that the government does not want us to ask. When the Prime Minister went to Washington, the Indian state-pleasing media told us what a success his visit was. Piyush Goyal has spent several days in America with no good news of substance to report but you would not necessarily learn that from the media.

 

   The problem is simple enough. For years India has told Washington that it is the world’s last bulwark against Chinese domination. India also has one of the world’s largest markets. So the US should help us grow our economy and invest in India to stop China’s rise.

 

   For the most part, successive Indian governments have persuaded American administrations that this is indeed the case. Total trade between India and the US has doubled in the past decade, to around $130 billion in 2024. American firms employ 1.7m people in India and have made substantial investments in our economy.

 

   But no matter how many Howdy Modi and Namaste Trump rallies may have been organised by members of the Sangh Parivar and their friends, it doesn’t make a difference to Donald Trump.

 

   Trump’s platform is based on increasing American revenues—from trade and the sale of expensive defence equipment—while simultaneously increasing American jobs. He doesn’t care about this ‘last bulwark against China’ stuff. He doesn’t even care too much about global politics. His policies are determinedly isolationist.

 

   India can live with some of this. We can buy American weaponry and higher-priced oil to keep Trump happy. But this is not going to be enough. As Trump has often said, and as Howard Lutnick, his Commerce Secretary, repeated while addressing the India Today Conclave last week, we have to lower our customs duties (tariffs) to match the US’. In effect, this means that if we don’t let American goods (which are cheaper than ours) into our market with very low duties, then Trump will impose punitive duties on Indian goods that are sold in America.

 

   From no angle does this look good for India. While our tariffs have come down since the 1991 reforms they are far above global norms.

 

   We impose them for three reasons. One: to protect domestic industry. Two: to raise revenue. Our current budget assumes customs revenues of Rs 2,40,000 crore in FY 2026. And three: sheer stupidity.

 

   The stupidity is easy to counteract. Why, for instance, should we fight with the EU to go on imposing punitive duties on fine wine when there is no domestic fine wine industry to protect?

 

  The revenue implications are more worrying. If we reduce tariffs on American goods we will have to offer reductions to other trade partners too. Once customs revenues drop, the government—which has been desperate enough for money to destroy the Indian stock market with new Capital Gains tax systems—will be hard-pressed to find as yet untapped sources of revenue.

 

"Open up India to cheap American agricultural imports and millions of farmers will go bust."

   And then there is the protection argument. Most impartial people will agree that there is less and less need to protect domestic industry.

 

   Still, some people disagree. And the problem is that these are the very business people and industrialists who fund and support the Modi government. It is to help such people that India went against the liberalisation trend in 2020 to impose higher duties in areas such as solar equipment.

 

   The slogan Aatmanirbhar Bharat may or may not work with voters but it sure as hell works with industrialists whose businesses are protected by the government’s tariff barriers.

 

   Though India’s duties on industrial goods can possibly be reduced, agricultural goods offer a more complex set of problems. Lutnik said last week that India had to open up its agricultural sector.

 

   But how? In this case, those affected are not industrialists but farmers.

 

   Take the dairy sector where duties can go up to 60 per cent. Every time the government has tried to sign some international agreement on dairy imports it has been forced to pull out by Amul, which says that a lowering of tariffs will bankrupt millions of dairy farmers.

 

   It is the same with other areas in the agricultural sector. Open up India to cheap American agricultural imports and millions of farmers will go bust. And farming is the one area where the Prime Minister has been forced to back down.

 

   So how can Narendra Modi agree to what Trump and Lutnick want without risking his own political position?

 

   India now faces a fundamental and complicated dilemma. The government’s flacks are trying to obscure it by focusing on how Trump pulled a chair out for Modi when the Prime Minister was in Washington or by pretending that Elon Musk’s campaign against USAID will help India.

 

   Trump may or may not like Modi on a personal level. But there’s one thing we do know about the US President: his approach to most issues is strictly transactional. He will never give anything without expecting more in return.

 

   In real terms, the Indian government’s options are limited. It is following the only course open to it: mollify and delay. Offer symbolic reductions in tariffs (motorcycles and Bourbon whisky for instance); make noise about agreeing with Trump (which, according to the Americans, India has done); buy expensive petroleum products and weapons; keep the negotiations going; and hope that things change. Which they might.

 

   Trump is entirely motivated by voter sentiment. At present, protectionism is popular with Trump supporters who think it will create more jobs in America and help struggling American businesses.

 

   But this may not last. Many of the foreign goods America imports are cheaper than the US equivalents. It is not clear how voters will react when prices go up following the imposition of tariffs. And while Trump seems entirely willing to alienate America’s neighbours and most of Europe, a single major global crisis could force America to rethink its isolationism.

 

    And in economic terms a rethink may well be overdue after the US stock market’s response to Trump’s policies. In his first term the market boomed because of Trump. But this time around there is deep disquiet over Trump’s isolationist policies and his insistence on high tariffs. The dollar is doing less well under Trump than it did under Joe Biden.

 

 Trump, who prides himself on making his supporters richer, may have to modify his policies if the market does not stage a concerted recovery. This could work to India’s advantage.

 

   With Trump, you expect the unexpected. So India is right to hope things change. Because if they don’t, we could be in real trouble. It could really end up as a time that Made India Poor Again.