Trump’s Tariff Playbook And What It Holds For Trade With India
US president Donald Trump’s tariff strategy is inspired by 19th-century isolationism. But in an interconnected economy, affected countries can adapt by shifting supply chains and depreciating currencies, leaving US consumers to foot the bill
On August 27, the tariffs imposed on India by US President Donald Trump are set to double from 25 percent to 50 percent.
Trump’s push for tariffs has stirred both global concern and domestic unease in his own country. While his supporters defend the measures as essential for protecting American jobs and industries, critics argue they destabilise the economy and alienate key allies. At town hall meetings, senators from his Republican party have been greeted with boos by people critical of the president and his policies, in particular his “One Big Beautiful Bill” which cut budgets for health schemes.
The persistence of his tariff approach, despite mounting evidence of its drawbacks, raises a pressing question: why does Trump continue to champion tariffs when scepticism abounds?
The numbers alone suggest trouble. Studies reveal that even in optimistic scenarios, tariff revenues of roughly $US 2.2 trillion over the next decade will fall far short of offsetting the $US 4.5 trillion in wide-ranging tax cuts introduced under his One Big Beautiful Bill. The gap risks swelling the US budget deficit by $US 3 trillion, pushing debt levels higher and placing pressure on Treasury markets.
Trump’s effort to boost domestic production, meanwhile, collides with a more practical barrier: a shortage of workers. His anti-immigration policies drained labour from agriculture and small department stores to the point where his administration was forced to quietly ease enforcement on farms and in small businesses. In the skilled sectors, employment growth has stagnated as firms increasingly rely on AI-driven productivity rather than hiring more workers.
Consumers are already paying the price. Everyday staples such as eggs, chicken and meat have grown more expensive as restrictions on imports filter through to store shelves, stoking inflation and undermining Trump’s leverage in trade negotiations.
This pass-through will increase and expand to include more items over the next few months as US producers run through inventories accumulated via pre-emptive purchases before the reciprocal tariffs came into place.
Industries too are feeling the strain. The automobile sector offers a striking example, with Ford reporting losses of around $US 800 million due to higher input costs and General Motors losing $US 1.1 billion as tariffs raised the cost of importing parts from its overseas factories. GM is hit especially hard because tariffs on its imports from its own facilities in China and Canada stand at 25 per cent, far higher than the 15 per cent faced by rivals in the European Union (EU) and Japan.
Yet even as tariffs bite, other countries have adapted by depreciating their currencies against the dollar and rerouting supply chains, moves that blunt the impact of Trump’s strategy. In fact, through production relocation via foreign direct investment in worldwide facilities, producers will gradually circumvent the tariff impact on their products. Trump’s haphazard tariff announcements in bilateral deals typically lead to such production relocation. ‘Tariff shopping’ will take place via such production relocation.
Less economics, more politics
The persistence of tariffs is therefore less about economic logic than political and personal calculations. Trump has often invoked President William McKinley, who governed at the turn of the 20th century and believed high tariffs could shield American industry even at the price of global isolation. In a now deeply interconnected world, Trump’s reliance on McKinley’s playbook seems anachronistic, yet it reflects his conviction that protectionism doubles as political theatre.
His personal motivations are never far from view: he has long sought recognition on the world stage, including the elusive Nobel Peace Prize, a prize his predecessor Barack Obama secured. Frustration with Russia’s role in Ukraine has at times driven impulsive decisions, such as penalising India for buying Russian oil, while tariffs themselves serve as a form of geopolitical signalling directed at rivals in the BRICS (Brazil, Russia, India, China, South Africa) grouping of countries and beyond.
India, inevitably, finds itself caught in the crosshairs. While exports of phones and pharmaceuticals have so far been spared, small and medium enterprises in textiles, leather goods and gems and jewellery face mounting risks. Large Indian producers may effect production relocation but the small and medium producers (MSMEs) will lose out on critical input links to these producers. Furthermore, tariffs on India are not solely about oil imports from Russia; they also reflect Trump’s suspicion of India’s ties with BRICS and his broader geopolitical calculus.
For New Delhi, the challenge is less about confrontation than adaptation. A pragmatic diplomatic approach that avoids political escalation, coupled with trade diversification toward the EU, UK and even China, can soften the blow of American protectionism. Future free trade agreements could then carve out sector-specific exceptions to safeguard vulnerable industries.
At the same time, India’s negotiators may find that gestures of praise and recognition, particularly if Trump engineers a peace deal in Ukraine, could help win back goodwill. On the other hand, even if India were to reduce its oil imports from Russia, there is no certainty that the proposed 25 per cent tariff penalty will not be applied if nothing emerges from his peace overtures in Ukraine. Trump’s ego remains a factor as decisive as any policy lever.
Ultimately, Trump’s tariffs are hurting American consumers more than foreign competitors, but they endure because they serve his political ambitions, personal vanity and ideological leanings. For India, the lesson is clear: it must prepare for the uncertainties of Trump’s economic nationalism not by resisting outright, but by diversifying partnerships, negotiating strategically and engaging tactfully.
With the expected end of the Trump presidency in 2028 looming on the horizon, New Delhi’s long-term strategy must be shaped by the recognition that Trump’s tariff playbook, however outdated, remains a defining feature of his vision for America’s place in the world. This is not going to change in a hurry.
For India, it may be best to let the internal contradictions of Trump’s tariff policy play themselves out.
