Trump's Tariff Rage Pushes A Miffed Modi Toward China

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As such, India, the globe's fifth-largest economy, is bracing for a turbulent ride. Trump's economy is New Delhi's largest trading partner. In 2024, India shipped $87.4 billion of goods to the US.

Some parts of Modi's economy are more exposed to Trump's tariff rage than others.

“In terms of sectors impacted, we think gems and jewellery, apparel, textiles, and other chemicals are more exposed to the US tariffs and could see some targeted support measures from the government,” says UBS economist Tanvee Gupta Jain.

Rajat Agarwal, a strategist at Societe Generale, says“the impact of tariffs for equities has fed through mainly via a weaker Indian rupee and higher currency volatility, which has weighed on foreign flows in the near term.”

Trump turning on India could be remembered as the moment his trade war jumped the shark. While Modi and Xi Jinping compare notes in Beijing, the Chinese leader will have additional incentives to say no to a“grand bargain” trade deal with Trump.

The weeks since Trump struck tariff deals with Japan, the European Union and others have been rich with news cycles about confusion over what was - and wasn't - agreed to. Since the pact with Japan on July 22, both sides have been at odds about the rules of the road concerning the 15% tariff, particularly the treatment of autos.

Richard Katz, who publishes the Japan Economy Watch newsletter, notes that is getting an earful from Detroit. Ford, General Motors and Stellantis complain that Trump's agreement with Japan and Europe puts them at a disadvantage.

“They have to pay a 25% tariff on automotive imports from Canada and Mexico , while Japanese and European vehicles and parts can come in at 15%. But the issue is a bit more complex,” Katz explains.

On all imports from Mexico and Canada, except for autos, the tariffs on imports from Canada and Mexico apply only to goods that do not comply with the North American content rules of origin under the US-Mexico-Canada Agreement (USMCA), e.g., 75% for most products, Katz notes.

For products that do comply, the tariffs will apply to that portion of content that does not comply, e.g. 20%. However, when it comes to automotive products, the 25% tariff applies to the non-US content, not the non-USMCA content.

Over in Brussels, meanwhile, EU officials are doing damage control over the $750 billion of oil and gas Trump demands Europe buy from the US in short order. European Commission President Ursula von der Leyen makes it clear the EU can't compel private companies to gorge on US energy for political ends.

Back in New Delhi , Modi is reassuring farmers, a key political constituency, that he won't sell them out to Washington. Speaking at an agricultural sector conference in the Indian capital this week, Modi said he“will never compromise on the interests of farmers, livestock owners and fishermen. I know, personally, I'll have to pay a heavy price - but I am ready for it.”

Other industries are raising red flags, too. The nation's Gem and Jewellery Export Promotion Council termed Trump's tariff escalation a“deeply concerning development.” The group says“this move would have far-reaching repercussions across India's economy - disrupting critical supply chains, stalling exports and threatening thousands of livelihoods. We ask the government for immediate relief.”

Billionaire Anand Mahindra, chair of India's sprawling Mahindra Group, warns of the economic risks of the“law of unintended consequences,” calling on Team Modi to“radically improve ease of doing business.” As Mahindra wrote on social media:“We cannot fault others for putting their nations first, but we should be moved to make our own nation greater than ever.”