The 50% tariffs that US President Donald Trump imposed on imports of Indian goods last month may inflict short-term pain on India, but they will most likely cause longer-term damage to the United States. By undermining a key strategic partner, fuelling inflation, and accelerating a shift away from the dollar, Trump risks weakening America’s economic clout and the Indo-Pacific strategy that both Republican and Democratic presidents have pursued as a security hedge against China.

Indians have understandably responded to the tariff with anger and anguish, partly because of its severity, but also because they feel singled out. Trump tacked on an extra 25% as a penalty for purchasing Russian oil at discounted prices and thereby “bankrolling” Russia’s war in Ukraine – a fate that China and the European Union have avoided, despite continuing to rely on Russian energy imports.

As a result, the Indian economy will suffer in the short run. America is India’s largest trading partner, accounting for 20% of exports and more than 2% of GDP. Even with exemptions for pharmaceuticals and electronics, around two-thirds of the goods shipped to the US are now subject to a 50% tariff. Textiles, shrimp, diamonds and auto components – all labour-intensive sectors clustered in small towns – are expected to be among the worst-affected. Job losses will make it even harder for young Indians to find productive employment.

Analysts estimate that US tariffs will reduce India’s GDP growth by 30-80 basis points. This comes at a time when the Indian economy has been a rare global bright spot, growing at an average annual rate of above 6% in recent decades, despite weak trade. America has been central to that story both as a market for goods and services and as a source of investment and technology. At the same time, US firms have come to rely on India’s competitive supplier base. Trump’s tariffs threaten to disrupt this symbiotic relationship.

Ultimately, higher duties on Indian goods that are vital to US supply chains – from leather to precision engineering – will raise costs and prices for American producers and consumers. Given that Trump’s return to the White House was fuelled partly by voter anger over inflation during Joe Biden’s presidency, such a policy is likely to be self-defeating. Tariff-induced price pressures could erode Trump’s political capital.

Equally shortsighted is the penalty for purchases of Russian oil. India’s imports of discounted Russian crude have moderated global oil prices, indirectly benefiting Western economies. The sudden halt of these purchases would likely trigger price spikes that OPEC and US shale producers could not rapidly offset. Rising energy costs would ripple through supply chains, boosting inflation worldwide – including in the US, further undermining Trump’s economic agenda.

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The Trump administration’s ire at America’s bilateral trade deficit with India ignores broader gains. When factoring in investment income, defence sales, royalties and education services, the balance tilts toward the US. Indian students – now the largest foreign student group in the US – contribute billions of dollars annually to the US economy.

Moreover, US tech firms depend on a steady influx of Indian talent, while India has become a hub for multinationals’ global capability centres, which boost corporate profits by providing low-cost IT support, design, accounting, customer service, and other functions. Tariffs threaten to destabilize this interdependent ecosystem.

Perhaps most importantly, losing access to India’s expanding middle class, a fast-growing consumer market that is expected to exceed 800 million people by 2030, will be costly for America in the long run.

Lastly, there are profound geopolitical risks to alienating India with steep tariffs. For two decades, successive US administrations have cultivated India as a strategic counterweight to China through initiatives like the Quad, increased intelligence-sharing, and promoting India’s role in supply-chain diversification.

That hard-won progress is now in jeopardy. At the recent Shanghai Cooperation Organization summit, Indian Prime Minister Narendra Modi met with Russian President Vladimir Putin ( who is scheduled to visit New Delhi later this year ) and Chinese President Xi Jinping, demonstrating India’s commitment to pursuing multi-alignment. Pushing India closer to China is precisely the opposite of what America hoped to achieve with its Indo-Pacific strategy. As former US Ambassador to the United Nations Nikki Haley recently warned, “To face China, the United States must have a friend in India.”

Meanwhile, the first five Brics members – Brazil, Russia, India, China, and South Africa – are beginning to align around a shared mission of combating US hegemony. Trump’s heavy-handed policies, including tariffs, have prompted intensified efforts to develop alternative payment systems and other arrangements that bypass the dollar and enable trade in local currencies.

Even making partial headway on this front could have a far-reaching impact. The dollar’s status as the world’s reserve currency bestows on the US the ability to borrow cheaply and to sanction freely. By weaponizing tariffs and antagonizing emerging powers, America risks accelerating de-dollarization and weakening its grip on global trade and capital flows.

For India, Trump’s tariffs must be met by diversifying export markets and bolstering domestic industry. The necessary reforms might be painful, but they will help India achieve greater self-reliance, strengthen Asian trade ties, and expand partnerships in Europe and Africa.

But it will be much harder for the US to repair trust with India. Unlike smaller economies, which can be pressured into concessions without geopolitical fallout, India has a population of 1.46 billion and ambitions to be a major power in a multipolar world. It is unlikely to forget Trump’s punitive tariffs any time soon.

Nor are Americans. Trump’s tariffs on India may deliver short-term political gains, but they undermine long-term US interests by alienating a rising trade partner, encouraging alternatives to the dollar, disrupting supply chains, and jeopardizing access to a critical market. India will adapt and emerge more resilient, but the US will most likely find that it has squandered a partnership central to advancing its economic and geopolitical interests.

Duvvuri Subbarao is a former governor of the Reserve Bank of India.

Copyright: Project Syndicate