‘TRUMP TARIFF’ GAMBIT CARRIES THE TRADE WAR INTO BRICS CAMP
The choke hold on the international
trading, banking, and finance (ITBF) system by the US led economic grouping, the G7, is at the core of the US
geopolitical supremacy.
This pre-eminence is under challenge
by BRICS, a geoeconomic bloc of eleven countries and expanding; founded by
Russia, China, India, Brazil, and South Africa; that aims at developing an alternative ITBF system. The BRICS
is also facilitating intra Bloc bilateral trade in local currency, that sidelines
the US Dollar. This strikes at the very root of the US global power edifice
based on the supremacy of the US Dollar.
Already the eleven BRICS countries account
for 40 % of global economy share in Purchasing Power Parity (PPP) as
against 28 % of G7.
On the other hand, the US economy is straining under a heavy public debt
burden of US Dollar 29 trillion, as against a GDP of US Dollar 29
trillion, making a Public Debt to GDP ratio of 100 %, and average
annual debt servicing to the tune of US Dollar 600 billion.
Without the choke hold on
the ITBF system, the US led G7 is likely to wilt under the economic and
financial challenge from the BRICS. To counter this challenge the US is implementing a controversial economic strategy of
unilaterally enforcing additional tariffs on incoming bilateral trade with all
countries, including its traditional allies, in an effort to strengthen
its economic
architecture and ameliorate
the heavy external debt burden.
The US allies and other weaker
economies have been coerced to negotiate trade tariff agreements, that are heavily
biased to favour the US. However, the BRICS countries have refused to buckle
under US pressure.
The US under President Donald Trump
administration is also using this opportunity as a ploy to create a rift within
the BRICS grouping. Towards that end, the US has applied varying tariff rates
on BRICS countries; 50% tariffs, with the threat of more in the pipeline, on
exports to the US from India and Brazil; South Africa, the weakest economy of
the three has been targeted with 30% tariffs; and temporarily withholding full
trade tariff sanctions against Russia and China, while engaging them in a
battle of wits.
US Interests
The foremost interest of the US lies
in preserving its geoeconomic and geopolitical dominance on the global stage.
Any attempt at facilitating de-Dollarisation in the global economy is
anathema to its core security interests.
The second US criticality is to
strengthen its economy by adopting a strategy that reduces bilateral trade
deficit, and promotes domestic manufacturing. By levying additional tariff
on incoming trade, it hopes to achieve both aims.
India, a designated defense partner
of the US in countering Chinese expansionism in the Indo-Pacific region, had
earlier been exempted from economic sanctions aimed at countries trading with
Russia. However, this time US has levied punitive tariffs against India as
well.
Impact on US India Bilateral
Relations
Since the turn of the 21st
century there has been a steady strengthening of the bilateral relationship
between India and the US. Several India specific agreements and initiatives are
being pursued by the US to strengthen overall mutual cooperation between the
two countries and assist in enhancing India’s core strengths vis a vis China;
such as…
2005 – India US Defense Relationship
Framework for defense cooperation in maritime security, humanitarian
assistance, disaster relief, and counterterrorism.
2007 – India, US, Japan, and Australia collaboration (Quad
Alliance) to ensure a free, open, and rules-based
Indo-Pacific.
2008 – India US Civil Nuclear
Agreement.
2016 – US designates India as a Major
Defence Partner.
2016 – Logistics Exchange Memorandum of Agreement (LEMOA), granting mutual access to
military facilities for fuelling and logistics support on a reimbursable basis.
2018 – Communications Compatibility and Security Agreement (COMCASA),
granting access to advanced communication technology in US defense equipment
and sharing of real time information between the two militaries.
2020 – India US Basic Exchange &
Cooperation Agreement (BECA) on sharing of geospatial intelligence in
Defence.
2023 – Advancing
the India-Middle East-Europe Corridor (IMEC) and India, Israel, UAE, US
(I2U2 Group) to enhance economic and security ties.
2023 – Initiative on Critical and Emerging Technologies (iCET) with focus on AI,
quantum computing, semiconductors, and 5G/6G technology development.
2025 – Catalysing
Opportunities for Military Partnership, Accelerated Commerce & Technology (COMPACT)
Initiative for 21st Century, to counter China’s belligerence in the Indo-Pacific and enhance
India’s defense capabilities.
2025 – Transforming Relationship Utilizing Strategic Technology (TRUST) Initiative
for collaboration in defense, AI,
semiconductors, quantum computing, biotech, and space.
The above series
of agreements and initiatives indicates a steady and strong aligning of national
interests of the two countries. This perception is further strengthened by
the fact that it has progressed under different political leadership in both
the democratic countries.
The strong
relationship between the two countries has its share of challenges too. India’s
insistence on strategic autonomy is the root cause of these differences.
India, citing
national interest, has persevered with purchase of major defense equipment
and energy supplies from Russia, despite unilateral US economic sanctions
on specific trade with Russia, under its domestic Countering America’s
Adversaries Sanctions Act (CAATSA).
Similarly,
there’s a difference in perception on countering China. The US favours adopting
a more confrontational posture. India, however, does not desire to confront
China openly, and has been resisting changing the nature of the Quad
Alliance from an informal arrangement to a formal military agreement.
The US from its standpoint, has been accommodative of India’s interests
on Russia and China. However, it views BRICS attempt
at developing an alternative
ITBF system and facilitating intra BRICS bilateral trade in local currency,
sidelining the US Dollar, as
non-negotiable and a challenge to its geopolitical primacy. India being a
leading founding member of the BRICS, is under strong US pressure to withdraw
from the BRICS.
In a strong strategic signalling to India, US has
covertly orchestrated a regime change in Bangla Desh, India’s eastern neighbour,
that is now pursuing patently anti-India policies. The US is also surreptitiously
supporting destabilising activities in India’s sensitive Northeast region, and also
in neighbouring Myanmar, to stymie India’s ‘Look East’ international
trade initiative. It is also re-engaging with Pakistan, India’s longtime
adversary to its west.
The 25% trade and 25% punitive
tariffs imposed on India, should be viewed as the most recent US measure to
coerce India to desist from BRICS attempt at developing an alternative ITBF
system.
All through the 1960s to the initial
years of the 21st century, for nearly fifty years, the US
geopolitical stance has been distinctly antithetical to India; punishing
the latter for pursuit of strategic autonomy by actively engaging in the
Non-Aligned Movement (NAM) and entering into a strategic partnership with the
USSR (now Russia). It’s only in the last two decades, that the two countries have
come close to engage in constructive cooperation.
The series of recent anti-India
actions of the US is bound to raise strong doubts in India’s decision making
circles about the reliability of the US as a strategic partner. It will further
convince Indian policy makers to adhere to the chosen path of maintaining
strategic autonomy.
Situation As At 112300h
Levy of 25% tariff on Indian exports
to the US, by the latter, is already effective from 7th of August
2025. An additional punitive 25% tariff will be effective from 27th
of August 2025, due to India continuing to buy energy supplies from Russia.
Ostensibly, the punitive tariff is to push Russia to end its war in Ukraine, by
coercing countries to stop buying energy supplies from Russia, thereby
impacting its revenue earnings.
The US President has also stopped further
progressing of discussions on the mutual trade agreement with India till the
issue is resolved. The probability of levying additional tariff on Indian
exports to the US also exists.
A summit meeting between the
Presidents of the US and Russia has been scheduled at short notice for 15th
August 2025 at Alaska, to discuss a peace agreement in the ongoing Russia –
Ukraine military conflict.
The key demands of Russia are,
retaining full sovereignty on all territories seized by it in Ukraine,
amounting to 20% of the total territory of Ukraine; demilitarisation of
Ukraine; and firm guarantee of its non-inclusion in the European Union and NATO
pacts in future.
Ukraine and major NATO countries are
not in agreement with these Russian terms. The Ukraine President, who has not
been invited for the discussions, has already voiced his dissent to any
agreement arrived at in the scheduled US – Russia summit meeting. Therefore,
the chances of a negotiated end to the military conflict in Ukraine are very
slim.
The current value of Indian exports
to the US annually is US Dollar 86 billion. Even the current US levy of
25% tariff on Indian exports makes them highly uncompetitive in the US markets.
Hence, levying of additional punitive tariffs makes not much material
difference to the outcome. India’s participation in
BRICS is the bone of contention.
Prevailing Geopolitical Equations
The current geopolitical situation is
an intricate mix of conflicting interests and temporary alliances of
convenience in a quadrangular competition for securing respective spheres of
influence, global markets, and resources between friends/frenemies/enemies, the
US, China, Russia, and India.
The US, for long enjoying
global pre-eminence in world affairs, is a status quo power with the largest
sphere of influence. Russia, rich in natural resources, and having made
a powerful comeback post disintegration of its former self as the USSR, is
reasserting itself in its near abroad in Europe and Central Asia. China
has already emerged and placed itself as the strongest rival to US global
supremacy, and is heavily engaged in expanding its sphere of influence globally.
India, currently the weakest of the four in terms of comprehensive
national power (CNP) matrix, is asserting its strategic independence, and promoting
its rise in global affairs through alliance of convenience with the other three
countries.
US and China equations are of near parity in CNP and
military power matrix. The US does enjoy superior power projection capabilities
globally. China, on the other hand, holds a strong sway in its near abroad. As
a rising power, China upstaging the US in CNP is a near certainty, if unchecked
by the latter. This is reason enough for the distrust that prevents their
arriving at mutual understanding on competing core interests. US covert
interference with China Pakistan Economic Corridor (CPEC), and the China
Myanmar Economic Corridor (CMEC), the two corridors critical to China’s core
interest; and US policies and ground actions that have hampered China’s
proclaimed national intent to amalgamate Taiwan, are major instances of US
attempts at degrading core interests of China. The only commonality between
the two countries is their propensity for unilaterally abrogating international
agreements and understandings.
Russia and US relationship, has been adversarial since the
times of the USSR. Despite the breakup of USSR and the Warsaw Pact alliance,
the US led NATO Alliance has continued to pursue adversarial policies towards
Russia. Successive attempts by Russia to seek an understanding with the EU
countries have been rebuffed. A resurgent Russia has taken recourse to military
option in Ukraine to safeguard its perceived core national interests. Unwilling
to engage with Russia in direct military conflict, the NATO and EU countries
have expanded the contours of the conflict into the economic sphere by
enforcing successive punitive economic sanctions on Russia.
China and Russia, competing neighbours for most of
their century old existence of the Communist era, have been twice thrust into
an alliance of convenience to face the challenge by the US led West Bloc. They initially
forged a fraternal communist ideological bond in the 1950s and 60s, to confront
the capitalist ideology of US led West Bloc. The two soon entered into a bellicose
relationship leading to serious border clashes between their militaries. The
sparsely populated and natural resource rich Siberia region of Russia has
always been an attraction to the densely populated and natural resource poor
China. Never natural allies, the two countries have now again entered into a
mutual alliance to meet the challenge from the US and its allies.
India has a need based mutual relationship with US, Russia, and China. It is
situated in a hostile nuclear armed neighbourhood, and is dependent on foreign countries
for its energy supply, major defence equipment needs, access to advanced
technology, and market for industrial goods and services. India’s rising
economy makes it a potential rival to the established geoeconomic and
geopolitical powers. Hence, there can be no guaranteed permanence in mutual
alliances. Under the circumstances, maintaining strategic autonomy is an
imperative for India. With the weakest CNP matrix of the four, India
perforce has to survive and thrive by stitching multiple international
alliances.
Strategic Options of India
India and China have engaged in multiple military
confrontations, are economic competitors, and view each other as biggest
threat to their respective geopolitical ambitions. India and US
share the most ideological and cultural affinity, and mutuality of interests
within the four countries. The US looks at India as a natural ally in
confronting China, the foremost adversary of both the countries. India too
looks at the US to countervail the dominating presence of an adversarial China.
However, India’s insistence on strategic autonomy and consequential pursuit of
economic and military policies which US considers antithetical to its core
interests have strained this relationship. The India Russia relationship
has been the most stable since the past half a century. However, India’s
inching closeness to the US has been a cause for concern in Russia. Presently
Russia does not have adequate leverage to influence China or US vis a vis
India.
India’s full swing into a Russia India
China (RIC) bloc has the potential to achieve immediate gains to ward off the
current US pressure. But it shall be at the detrimental cost of making its
strategic autonomy hostage to China, its principal adversary.
India needs two more decades to
enhance its CNP in practical terms to independently ward off predatory strikes
by its rivals. Hence, a complete rupture with the US would not be in interest
of India at this juncture.
India has bipartisan support in the
US Congress. It needs to weather the storm, while taking recourse to WTO
options, levying countervailing tariffs on exports from the US, and pausing
China related cooperation with the US. Afterall, without the geostrategic weight
of India, the US pivot to the east to confront China in the Indo-Pacific shall
lack the desired punch to deter China.
Very well written Sir
ReplyDeleteThank you Vikki for your appreciation.
ReplyDeleteGreat insights as usual.
ReplyDeleteThanks