Countering US tariffs

India has said it wants to increase its purchase of oil and gas from the US, according to Commerce Minister Piyush Goyal.

The move may help to lower tariffs on New Delhi's exports and also aid in securing a trade deal.

This latest happening comes after as President Trump imposed 50% tariffs on India due to its purchase of Russian oil, which Trump said has aided the Ukraine war. It also follows Washingtons move, where they slapped $100,000 fees on new H-1B visa used mainly by Indian tech workers.

Indians, who have accounted for more than 70% of such visas in the past. The order has rattled India’s $280 billion tech services industry, threatening business outsourcing models and putting thousands of jobs at risk.

There has been a wave of efforts to counter the tariffs. A more productive approach would be to focus on minimizing the economic fallout. To do so, it is important to recognize that both a trade and a financial channel could cause Trump’s trade war to trigger a global economic downturn. To weather his trade war, governments must forge strategic alliances and apply economic pressure without directly harming domestic industries.

The EU’s Anti-Coercion Instrument provides a useful model for applying economic pressure without directly harming domestic industries. For example, these measures could allow the bloc to suspend intellectual-property protections for US software and streaming services or restrict US banks and financial-service providers from operating within EU markets. Developing countries might find such measures especially attractive, because the US tends to run large trade surpluses in intellectual property and financial services.

Beyond individual responses, countries must pursue collective action. Strengthening regional economic integration by removing trade and investment barriers within existing trade blocs would be much more productive than raising tariffs on US goods. Expediting negotiations on new trade and investment agreements – including inter-regional partnerships like the incipient one between the EU and Latin American MERCOSUR bloc – could also serve as an effective countermeasure.

The European Central Bank (ECB) found that around 26% of its survey respondents reported switching away from U.S. products. Around 16% indicated they have reduced their overall spending.

High-income households are more likely to switch away from U.S. goods, while lower-income households are more inclined to cut back their overall spending," the ECB said, adding that financial literacy also impacted these decisions.

Indian manufacturing, already in a vulnerable position, is likely to be severely affected by US President Donald Trump’s reciprocal tariffs. Despite the government’s efforts to boost the sector through the ‘Make in India’ initiative.

To navigate these challenges, India must rethink its economic strategy and take proactive measures to cushion the impact of Trump’s tariffs. One key step would be to diversify its export destinations. While the US has traditionally been one of India’s largest trading partners, the unpredictability of American trade policy underscores the need to explore alternative markets. Strengthening trade ties with the European Union could help offset losses in the US market, while expanding agreements with ASEAN nations could open up new opportunities. Additionally, emerging economies in Africa and Latin America present untapped potential for increased trade and investment.

India must also focus on strengthening domestic manufacturing to ensure resilience in the face of shifting geopolitical trade dynamics. Investment in innovation and technology will be critical to maintaining global competitiveness. Indian firms must adopt advanced manufacturing techniques and prioritise research and development to produce high-value, innovative products.

Policy measures to boost domestic demand, such as the recent increase in tax exemptions for income and interest proposed in the Union Budget 2025-26, could help counteract the negative impact of tariffs—provided the additional disposable income is not diverted toward imported goods. Ensuring the availability of affordable credit for businesses and consumers will also support investment and spending, strengthening the overall economy.

The 2025 tariff wars have destabilized the global defense industry by disrupting intricate supply chains, raising costs, and straining geopolitical alliances. Defense production, heavily reliant on rare earth elements and semiconductors, faces delays and cost inflation due to tariffs and export bans. Major arms producers like the U.S., EU, China, and emerging exporters like India are significantly impacted. India, facing U.S. tariffs and supply disruptions, must diversify suppliers, invest in domestic capabilities, and forge new alliances to mitigate risks. Strategic partnerships, R&D investments, and defense trade agreements are essential to sustaining India’s defense industry amid global instability.

India must pursue an Indo-U.S. Defence Trade Deal that could eliminate tariffs on Apache components and lower production costs for indigenous systems.

Diversify Bilateral Agreements: Secure critical inputs through deals with nations like Japan, South Korea, and Australia to reduce vulnerability to U.S. tariffs.