What else can they do?

This post provides context to today’s news (July 31st 2025) of Donald Trump’s ‘25% tariff plus penalty’ announcement on India. For a background of Indian ruling class’ response to trade pressure from the Trump administration, see What Explain’s India’s Response to Trump.

The lead headline in most Indian newspapers today reads: “Trump hits India with 25% tariff plus penalty”, or words to that effect. Trump has made this announcement in his usual style, on social media, replete with abuse and entire phrases in capital letters. This makes it unlikely that an interim trade deal between the U.S. and India, preceding the full-fledged Bilateral Trade Agreement (BTA) between the two countries which is being negotiated, will come through.

India’s Ministry of Commerce and Industry said that the Government had taken note of Trump’s statement, and is “studying its implications”:

India and the U.S. have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective. The government attaches the utmost importance to protecting and promoting the welfare of our farmers, entrepreneurs, and MSMEs [micro, small and medium entrepreneurs].

The Government said it would take “all steps necessary to secure our national interest.” The fundamental problem, however, is that, if it does not arrive at a deal, it has no alternative course of action.

It is clear that Trump’s latest theatrical move, while introducing additional uncertainty into an already highly uncertain situation, is part of the US’s tactics to apply more pressure to secure its aims in the ongoing negotiations. Various labour-intensive sectors such as jewellery, textiles, garments, and seafood fear an immediate impact. While electronics (mainly phones) and pharmaceuticals have apparently been spared for the moment, they may be drawn in later. Since the negotiations concern trade in physical goods, not services, India’s IT industry are not meant to be directly affected. Nevertheless, in order to apply further pressure, the U.S. could create problems for IT exports from India, through instruments such as investigations, denial of visas, taxes, and so on.

All such measures may create problems for the U.S. and U.S. firms as well, and hence might create a lobby which would force Trump to back down. However, Trump has shown that he believes that a period of turmoil, perhaps with temporary hardship for U.S. citizens, is necessary in order to extract the best possible deal. So it is difficult to predict how things will unfold.

The Indian government, for its part, faces a difficult political situation. The U.S. is evidently demanding concessions in certain ‘sensitive’ sectors, such as imports of cereals or dairy products. These are important sectors of the Indian economy, employing large numbers of people, and are vital to food security as well. Already kisan organisations have mobilised against any concession on these questions. The Government would have to pay a heavy political price for any blatant concession in such sectors.

Normally, the U.S. and other imperialist powers understand these political difficulties of Third World rulers, and provide them some political space for a deal. However, that space has been narrowing in recent years, and today, in his desperation to secure big gains, Trump has virtually done away with whatever space remained. While trade negotiations are usually depicted as beneficial overall for both sides, enabling each side to justify the loss to any specific sector as a result of the deal, Trump has dropped all such pretensions, and depicts the deal as simply benefiting the U.S. alone. This is very awkward for the Indian rulers.

The Indian government appears to be searching for other ways to satisfy Trump. One way is at the expense of other trade partners—take, for example, the Commerce Ministry’s appeal to importers to switch from Chinese goods to U.S. substitutes. Another way is to make concessions whose impact may not be immediately apparent to large sections of the people—such as the concessions relating to intellectual property rights.¹ A third way may be to buy more U.S. weapons, whose purchase does not displace any Indian producer, but only other foreign producers. According to a report of July 30, the Indian Air Force has strongly endorsed purchase of the U.S.-made Lockheed Martin F-35 Lightning II over the Russian Sukhoi Su-57E.² It was the F-35 that Trump strongly pushed during Modi’s visit to Washington in February. One does not know whether even a bouquet of such measures will finally satisfy Trump, given his maximalist negotiating stance. But such measures would harm Indian national interests, whether or not they meet immediate, organised opposition in India.

The fundamental problem for India’s rulers is that, in the recent period, they have staked so much on their export model. (We commented on this in an earlier piece on Trump’s tariffs.) Indeed, in the face of an unrelenting economic slowdown, they are even more committed to it. The Make in India policy of 2014 (which itself was a re-branded version of the 2011 National Manufacturing Policy), the Atmanirbhar Bharat Abhiyan of 2020, and the Production-Linked Incentives scheme of 2021 all were premised on creating a manufacturing base in India for exports, with the help of multinational corporations. Modi said in his first Independence Day speech (August 15, 2014) from the Red Fort:

I tell the world, ‘Make in India’. Sell anywhere but manufacture here. We have the skill and talent for it.

Leaving aside other grave problems with this model, it is obvious that it requires that the developed world greatly and progressively increase its import of these goods from India. But the chances of that happening were never good, and are getting bleaker: first, because Trump is trying to restrict such imports (for example, pressurising Apple to manufacture in the U.S., rather than in India), and secondly because the world is rapidly moving toward a recession or even a new Great Depression. Trade blocs might emerge, with barriers against those outside these blocs. To base one’s growth model on exports in these conditions is clearly absurd.

The problem is that the alternative path of development, of all-round development of the home market and employment-intensive industries, accompanied by steady development of trade relations with a range of Third World countries, is impossible for India’s rulers to conceive of, let alone bring about. And hence the frame of discussion is restricted to how to strike a deal with Trump; which means how much of India’s national interests can be safely sacrificed, and how the consequences can be politically managed.