Trumps Tariff Gambit What Drives the Policy?

Indian exporters now face an additional 50 percent duty on top of existing tariffs. Half of this (25 percent) is a penalty imposed due to India’s continued oil trade with Russia. Under Section 232 of the U.S. Trade Expansion Act of 1962, tariffs can be raised on national security grounds, though strategic exemptions apply to some products. But for important exports like textiles, leather goods, gems, and jewellery, import duties can now climb above 60 percent. Some of these sectors have as much as half their output exposed to the U.S., and many will not survive. True, these exports enjoyed a temporary boom as U.S. buyers made pre-emptive purchases ahead of the tariff deadline, but that respite is short-lived. Already, advance orders are drying up.

Even for the U.S., the tariffs are self-defeating. Optimistic forecasts suggest revenues of $2.1 trillion over the next decade, but that pales beside the $4.5 trillion gap created by Trump’s sweeping tax cuts, leaving the budget deficit set to swell by $3 trillion. Treasury markets will feel the pressure, debt levels will rise, and long-term stability will suffer (this has already happened once before!). Trump’s promise of a manufacturing revival collides with a labour shortage of his own making. His hard line on immigration has drained farms and small businesses of workers, forcing his administration to quietly relax enforcement. In skilled sectors, hiring has stagnated as companies turn to AI-driven productivity instead.

In the U.S., consumers are already paying as the prices of everyday staples—eggs, chicken, meat—climb while restrictions on imports from Mexico and China ripple through grocery stores. Industries too are hurting. The automobile sector illustrates the problem vividly. Ford has reported $800 million in losses, while General Motors has lost over $1 billion. The reason: tariffs on imports from its own plants in China and Canada stand at 25 percent, far higher than the 15 percent levied on rivals from Japan or the EU. Trump’s erratic bilateral deals will only accelerate the process of “tariff shopping” as firms shift operations to low-tariff jurisdictions and re-export to the U.S., blunting the very impact Trump seeks. What then drives this policy, which seems bad for the world and for the U.S.?

One must understand that these tariffs are not merely a reflection of Trump’s personal whims, as is often made out in the media. His policies are driven by a circle of advisors steeped in protectionist thinking and are a continuation of past attempts at geopolitical change (see my article, “Trump and Trade; the turmoil continues”, Mint, 18 April). U.S. Trade Representative Jamieson Greer has condemned the “nameless global order dominated by the WTO,” for which “the U.S. has paid with the loss of industrial jobs and economic security” (from his speech on August 7, 2025). Peter Navarro, Trump’s economic confidant, goes even further, branding India’s import of Russian crude and export of refined products to the U.S. not as comparative advantage but as a conspiracy.

The persistence of tariffs (they are not going to reverse despite the recent court order) has less to do with simple economics and more to do with politics and ideology. Trump often invokes President William McKinley, whose 19th-century protectionism sought to shield U.S. industry behind high walls. In today’s interconnected world, such ideas seem anachronistic, yet they double as political theatre. Tariffs are not just about trade; they are symbols of national assertion and personal vindication. Trump’s quest for recognition—including the elusive Nobel Peace Prize once awarded to Barack Obama—sometimes bleeds into trade policy. His frustration with Russia’s war in Ukraine has fuelled punitive measures against India’s oil trade, even as these moves undermine U.S. supply chains. In this sense, tariffs are also a signal to China and Russia, with India caught as collateral damage.

So how should India respond? In the short term, the priority must be to cushion the blow for MSMEs, who will be devastated while larger producers relocate. Relief could come through tax measures, such as placing vulnerable export products in the lower 5 percent GST bracket, at least temporarily. In the longer run, India must diversify its export markets toward the EU, UK, and even China, while pursuing trade agreements with the U.S. that carve out sector-specific protections. Diplomatically, managing Trump’s ego will be as important as managing his policies. Symbolic gestures—especially if he lays claim to brokering peace in Ukraine—may be as effective as formal negotiations in restoring goodwill. Political retaliation must be tempered with the realization that India’s exports of services (mainly to the U.S.) now exceed commodity exports and are not affected by reciprocal tariffs. We do not want attention diverting to that.

The irony could not be sharper: Trump’s tariffs hurt U.S. consumers and producers more than foreign competitors. Yet they persist because they serve his political ambitions, ideological instincts, and vanity. For India, the lesson is clear. It must prepare for the uncertainties of Trump’s economic nationalism not by reacting in panic but by hedging carefully. Jumping into agreements like RCEP in haste would only weaken India’s bargaining power elsewhere. Have the reasons why India opted out in the first place been altered by Trump’s tariff policy? Better instead to diversify, negotiate shrewdly, and let the internal contradictions of Trump’s policy play themselves out. After all, 2028 is not so far away.

Manoj Pant
Former Director, IIFT
Visiting Professor, Shiv Nadar University