Tariffs, sanctions and strains | Trump’s economic pressure test for India

The ongoing trade war initiated by US President Donald Trump has taken a sharp geopolitical turn, with India now firmly in its crosshairs. What began as an effort to fix trade imbalances has escalated into a campaign of economic pressure aimed at achieving broader foreign policy goals. In a controversial move, Trump has threatened India with additional tariffs, accusing it of benefitting from discounted Russian oil amid the Ukraine conflict — a step seen as part of Washington’s larger bid to corner Russia and simultaneously press India into accepting tough terms in their bilateral trade negotiations.

New Delhi, strongly objecting to this stance, has denounced the tariff threats as both “unjustified” and “unreasonable.” The government has vowed to defend the nation’s economic interests and sovereignty. For Indian exporters, however, this development is a serious setback. The United States is India’s top export destination, accounting for nearly one-fifth of all outbound trade, and any disruption could have significant consequences. Strategic analysts and economists warn that Trump’s tariff escalation risks unraveling two decades of steadily growing Indo-US ties. The criticism comes on the heels of Trump’s provocative comments about India’s alignment with BRICS, his discontent with Apple’s manufacturing shift to India, and a controversial outreach to Pakistan’s military leadership—moves that have not gone unnoticed in New Delhi.

Yet this tactic of leveraging economic tools for political ends is far from new in Washington. A recent working paper by former Reserve Bank of India Governor Urjit Patel describes the United States as the world’s foremost practitioner of economic coercion through sanctions. His analysis, titled ‘Asphyxiation by Sanctions: Harm, Fear and Smog’, highlights how institutions like BRICS and the AIIB could serve as buffers against the risks posed by such unilateral pressure. Patel refers to the US as the “hegemonic sanctioner,” noting that it has been responsible for 486 of the 1,325 sanctions imposed globally since 1949 — more than three times that of any other nation or entity. These sanctions have primarily targeted countries like Venezuela, Iran, Iraq, and Syria, severely impacting India’s options for energy imports.

India, for instance, was only able to resume oil imports from Venezuela in 2023 after a three-year hiatus, once US restrictions eased. Meanwhile, the Chabahar Port project in Iran—jointly developed by India—was stalled due to renewed American sanctions in 2018. Even after a long-term agreement was signed in 2024, fresh threats from the US State Department over potential sanctions on Iran have created new uncertainties. Similarly, Indian state-owned oil firms have been unable to repatriate nearly $900 million in dividends from Russian investments due to US and EU restrictions on payment channels. This impedes both corporate earnings and government revenues.

Patel's study also critiques the disproportionate impact of these sanctions on emerging economies like India, calling attention to the indirect but substantial financial damage they cause. He points out that the US’s use of its financial dominance — particularly the centrality of the dollar and global reliance on US banking networks — has enabled it to enforce these measures far beyond its borders. Yet this very overreach, Patel warns, is prompting countries to seek alternatives to the dollar-dominated global financial system — a trend that may eventually erode US monetary supremacy.

Meanwhile, on the trade front, the Trump administration’s unwillingness to negotiate specific sectoral tariffs — especially on steel and automobiles — has already hurt Indian exports worth nearly $5 billion. Experts fear the situation may deteriorate further. Evan A. Feigenbaum of the Carnegie Endowment for International Peace has voiced concerns that US-India ties may become collateral damage in an increasingly transactional foreign policy approach. He cautioned that the foundational assumptions of the Indo-US relationship — that Washington would take political risks to strengthen ties — are being tested under Trump.

Feigenbaum also flagged Washington’s recent overtures to Islamabad, including praise for Pakistan’s military leadership and favorable trade concessions, as unsettling for New Delhi. India’s longstanding partnerships, whether with Iran, Russia, or Myanmar, have long irked American policymakers. But Trump’s decision to escalate punitive measures over India’s oil trade with Russia may set a precedent that fundamentally alters the trajectory of bilateral ties. In doing so, Washington risks sacrificing a strategic relationship at the altar of short-term political bargaining.

In sum, Trump’s tariff threats and coercive diplomacy mark a dramatic shift in how Washington engages with key partners. For India, it is a moment of recalibration — one where diversifying strategic and financial alliances may no longer be a choice, but a necessity.