Modi stands firm as Trump escalates tariff war and India plots new alliances

Narendra Modi arrived in China radiating confidence, appearing remarkably comfortable alongside both Xi Jinping and Vladimir Putin at a recent regional security summit. His warmth with two of the world’s leading authoritarians has not impressed the White House. Ahead of Modi’s visit, Donald Trump’s trade envoy, Peter Navarro, sharply criticised India’s prime minister for aligning with autocratic leaders. Unfazed, Modi has displayed rare defiance, rebuffing the US president’s escalating pressure tactics.

Trump recently imposed his highest tariffs yet on India, slapping a 50 percent duty on roughly two-thirds of the country’s £64bn worth of annual exports to the United States. The president’s public comments describe America’s trade relationship with India as an “utter disaster” and reports now suggest Modi has gone as far as to avoid direct communication, declining even to answer calls from the White House.

Rather than caving in, Modi doubled down on strengthening ties with Russia, emerging after a private meeting with Putin to proclaim the enduring nature of their partnership, even as new US tariffs seek to penalise India’s ongoing purchases of Russian oil. His strategy is resonating at home, where the Trump-imposed secondary tariffs are widely seen as capricious. Recent polls confirm that support for Modi remains robust, with his BJP party performing well in the latest surveys.

Yet this steadfastness could exact an economic toll. A study by the Global Trade Research Initiative warns that jewellers in Surat and Jaipur, shrimp farmers on the east coast, textile mills and rice growers face the real risk of rapidly losing their American clients. There is already talk of potential redundancies and closures. The rupee has fallen to uncharted lows, reflecting mounting uncertainty among traders.

Indian ministers convened last week to consider measures to shield exporters, potentially deploying government subsidies to help soften the blow. These may include using taxpayer funds to assist with wage bills for those businesses most exposed to the US market, aiming both to keep prices competitive and preserve jobs. The government may also use this moment to overhaul India’s notoriously intricate consumption tax system, an effort positioned to stimulate domestic demand ahead of the Diwali festival.

Exports comprise just a fifth of India’s GDP, lower than in other major economies, and services—nearly half of export revenue—have so far escaped Washington’s wrath. Still, the common wisdom among economists is that India will need to shed protectionist instincts and accelerate free trade negotiations. Talks with Britain and the UAE have yielded agreements, and renewed discussions are under way with the EU and possible entry to the CPTPP. Meanwhile, Modi’s overtures in China signal a potential thaw between traditional rivals, with both sides mulling closer economic cooperation and greater trade in strategic resources.

India continues to be the world’s largest buyer of Russian crude, a trend undeterred by US secondary sanctions. A shift away from Russian oil could rapidly inflate global prices, which would in turn impact India’s macro-economic balance. Policy advisers caution that the government’s priorities are to maintain affordable oil imports and steady economic stability.

Despite the rhetorical salvos, trade discussions continue behind closed doors. Trump has hinted at a new Indian offer on tariffs, though he maintains negotiations are running out of time. Diplomatic friction, compounded by Modi’s refusal to grant Trump credit for de-escalating recent regional tensions, remains an obstacle to reconciliation. Observers note that India appears resolute in weathering the present trade hostilities while preparing support for affected industries, and the government seems prepared to wait out the current storm, confident in its ability to adapt both economically and diplomatically.