US President Donald Trump's 50% tariffs on India came into effect on 27 August. So far, rather than retaliating, India has put forth a carefully orchestrated geopolitical response to signal its displeasure to the US.
There's been the much publicised attempt at a rapprochement with China, and striking images of Prime Minister Narendra Modi sharing a limousine ride with Russian President Vladimir Putin splashed across the media from the sidelines of a security forum meeting in Tianjin.
Domestically, Modi has announced some help for struggling exporters and there are tax cuts on the anvil to mitigate the impact on exports.
But Delhi finds itself in an unenviable spot. The tariff impasse with its largest trading partner has continued far longer than anticipated, trade negotiations with Washington have come to a halt and the already damaged ties are fraying further with daily admonishments from US officials.
The repercussions are significant. Prolonged 50% tariffs could shave off as much as 0.8% of India's GDP, according to some estimates. India's exports to the US could drop by as much as $35bn (£26.1bn) this financial year, putting hundreds of thousands of jobs across key industries at risk.
Pushed to the brink, the question some are asking is whether Delhi will retaliate. And if not, what are its least damaging options?
If the past is any precedent, India hasn't shied away from retaliation. It imposed steep tariffs on some 28 US products back in 2019 when Washington had refused to exempt the country from higher taxes on steel and aluminium.
This time, escalating the trade war will not be in India's interests, say experts.
Retaliation is a very costly and unproductive strategy because at the end of the day India depends more on the United States than is the case in reverse, Ashley Tellis at the Carnegie Endowment noted.
At $86bn, India's goods exports to the US are nearly three times higher than the US's goods exports to India.
India's symbolic responses in support of a multipolar world, including deepening engagement with Japan, China, and Russia have been wise moves, said Ajay Srivastava from the Global Trade Research Initiative, adding that direct retaliation at this stage would be premature.
India should wait at least six months to assess the full extent of US actions—not just the 50% tariffs but also any additional measures that may follow, given the unpredictability of Trump and his advisers, Srivastava said.
Delhi must also consider the ramifications of expanding US tariffs to non-goods areas including services and digital trade, which comprise 6% of India's GDP.
Some experts suggest India should focus on diversifying export markets, cultivating ties with countries like Mexico, Canada, or China, and strengthening trade relationships with European and Latin American nations concerned about the tariffs. This effective diplomatic coalition could put pressure on Washington.
While diversifying markets may mitigate some risks, export diversification and establishing new partnerships will take time, presenting its own set of challenges.
The risks of retaliating against Trump’s tariffs are high, leaving India to navigate a complex geopolitical landscape carefully.
