Trade, sovereignty and the national interest: India after the Trump tariff

In the nineteenth century, the Irish radical, Oscar Wilde, suggested that it is possible to “know the price of everything and the value of nothing”. Donald Trump’s imposition of a ‘penalty tariff’ on India for buying Russian oil has triggered statements that reflect this pitiable cognitive state. India’s media persons have proclaimed that India has remained "defiant” in the face of Trump’s bullying. Some economists have proclaimed India’s lack of a response thus far as wise and to India’s advantage. I beg to differ.              

          While on the surface, international trade involves an exchange of goods and services, it based on certain underlying principles. It assumes on the part of the trading partners a recognition of each other’s freedom to act according to their conscience and interests. Where a country is unhappy with another’s politics it may legitimately end its trade with it but it cannot demand that it alters its policy. It is difficult to make complete sense of Trump’s waywardness but unhappiness with India’s is perhaps what drove him to impose a penalty tariff on its exports. The United States may have the sovereign right to do so but a country that claims to be a democracy would be expected to be even-handed at least. To the contrary, the partisanship in the act is transparent. The penalty, Trump has claimed, is punishment for India purchasing Russian oil, thus “fueling” the country’s war machine. Trump’s action is inconsistent even without it being said that the US is actually Israel’s war machine itself, for it is US-built arms, aid and political support that has enabled Israel’s genocide in Gaza. It is inconsistent because America’s satellites in Europe and China buy more goods from Russia than India does while the United States remains silent. Much time is spent in India’s national media trying to figure out what Trump’s real reason for sparing these countries is. Actually, it’s quite simple. Western Europe is still the US’s political ally and the US needs China’s rare earths. Everything else, including the argument that Indian companies are “profiteering” by purchasing Russian crude, refining and exporting it cannot be taken seriously. When American manufacturers of computer hardware employ cheaper Chinese workers in their country and export to the United States they are profiteering in this sense.

          Trump’s explosive comments have, however, provided an opportunity for us to think through what trading would involve for India. In an uncanny resemblance to Trump’s argument, and, disturbingly, that of his Trade Tsar, Peter Navarro, a prominent Indian economist based in the US has been reported as proposing that India should consider shifting away from Russian oil, ostensibly on grounds that it benefits some Indians and hurts others. According to the author of this advice, those benefiting are the private oil refiners who purchase Russian oil and those hurting are the ones whose exports are going to be affected by the Trump tariff. Note that this view does not question America’s right to oppose India’s import choices; it accepts it as unremarkable. As I have made my views on this issue clear, I shall proceed to the point about differential outcomes. When conflict arises in the pursuit of national objectives we must per force adopt a hierarchy of desirable outcomes. In this particular case, priority would be to assure the supply chain for oil as it is the material enabling economy-wide activity, and for which there is no domestic substitute. If this irks Trump, with resultant consequences for India’s exporters, a trade-off arises. India’s choice would be to secure the supply oil first and deal with the consequences in the best possible way secondarily. These range from seeking export destinations other than the US and giving temporary financial support to the exporters affected by the Trump tariff. But the option of purchasing Russian oil should not be rethought so long as it is beneficial to India. That some Indian companies may profit from this arrangement is inevitable, but it should be viewed as irrelevant in the context. If necessary, these companies may be taxed a higher rate. The larger goal would have been achieved anyway. In a country with diverse constituencies, it is possible that trade policy will result in some doing better than others. Whenever this occurs, the policy would have to justified by reference to some larger national interest.

          Two globally significant episodes when a state tailored trade policy to advance a larger goal help us place the role of trade in the larger scheme of things. The first was during the Industrial Revolution in England. The Corn Laws which protected the landed aristocracy from European competition, were seen as a barrier to industrialisation. The higher price of domestic corn, or wheat, meant higher wages if workers were to survive, leading to lower profits for industry, considered the engine of growth. Industrial interests banded together to abolish the Corn Laws, allowing cheaper Continental corn to enter the country. Britain was to industrialise, and become far richer in the process. Its landowners had to settle for less. The other example is from early independent India. In the 1950s, as India planned to industrialise, it raised tariffs to protect domestic industry. Industrial production surged. Though the industrialisation project was envisaged as state-led, private production was not banned. India’s capitalists who received licences did extremely well out of this arrangement while Indian consumers paid a price higher than they would have done under free trade. But this outcome must be set against the fact that industrialisation was initiated and the Indian economy took off. If this is taken to be the right goal for the time, the distributional consequences of the policy should be seen as incidental. These instances enable us to think clearly about the intricate web of economic relations within a country that are impacted by trade. They were historical episodes when trade policy was aligned to further national objectives, which is what India should aim to do today.

          A question that has often come up in the discussion following Trump’s penal tariff on India is that of national sovereignty. It does not require recourse to rocket science to see that Trump expects India to shed its sovereignty and accede to his demand that we do not purchase oil from his enemy. This is outrageous, and an expectation that no self-respecting country can agree to. India has done well to not discontinue these purchases. But its actions so far have fallen short of what was imperative. It is not desirable in international relations to just go about one’s business with one’s head down without protesting when a dominant actor violates long-standing unwritten rules of engagement. Actions by other countries aimed at checking your freedom must not just be reciprocated, they must be seen to be. From this point of view, India has lost an opportunity to assert its sovereignty by slapping a penalty tariff on the United States for curbing India’s freedom to trade as it sees fit. If evidence is at all needed that this is what self-respecting countries do, it need only be recalled that this is what China did when Trump pushed tariffs on Chinese goods to 150 percent in April. China immediately responded by raising its tariffs on American goods to 125 %. For good measure, in his first public appearance afterwards, President Xi Jinping announced that China was “not afraid” of the consequences. Since then, China’s economy has not collapsed, as academic economists would have been quick to predict as inevitable. On the other hand, Trump has climbed down, and quietly resumed trade talks. The counsel for restraint by India’s suborned elites is not only a call for surrender in the face of his bullying but also naïve in terms of its understanding of the long-term costs to India of trading its sovereignty for a dishonourable peace. Sovereignty is the fountainhead of nationhood for a country. If India gives up its hard-earned sovereignty, it will no longer be considered a nation. For a country, there can be a cost to asserting its sovereignty but the consequence of not doing so when necessary is likely to be greater. During the Indian national movement, its leaders had coined the slogan ‘Karo yah maro!’, ‘Do or die!” to rouse the population. Those who do not identify with that phase of India’s past cannot be expected to appreciate its lasting value.