HSBC Global Research said on Thursday that US President Donald Trump's move to put a 25% tariff on Indian imports might actually set the stage for resumed trade talks, not merely raise the stakes. The Indian government's refusal to walk away from continuing talks demonstrates its desire to talk, the report added.
Trump has just announced intentions to impose a 25% tariff on Indian products and enact a penalty regarding India's acquisition of Russian oil, which would come into effect on August 1.
The US-India trade agreement had gone far but was stuck because of ongoing disagreements. The most important among them were US requirements for greater market access in agriculture, dairy, and genetically modified goods—sectors where India has been conservative because of its large population depending on agriculture for livelihood.
Other sources of tension included animal oil trade and what the Trump administration has described as "strenuous and obnoxious" Indian non-tariff trade barriers, such as import prohibitions and licensing restrictions.
A new tacit request today was for India to refrain from purchasing oil from Russia. India is a big importer, purchasing approximately $220 billion worth of oil annually to support its economic requirements. Recently, it was purchasing approximately 35 per cent of its oil from Russia," the HSBC report added.
Figures analyzed by HSBC indicate India imported just around 3% of its oil from Russia in 2021. In the last five years, India cut imports from the Middle East and the US. HSBC, however, added that this also implies India can once again switch back to those markets. "Actually, as early as July, we notice a sharp fall in India's purchases of Russian oil," the report added.
According to HSBC economists, compromise in oil imports with other disputed areas could pave the way to an all-round deal.
The 25% tariff could slash more than 0.3 percentage points from India's economic growth, and the details of the oil-related penalty are still not known, but that surely will put extra stress.
In recent statements, President Trump unveiled a spectrum of tariffs against different nations: 15% on Japan and the European Union, and 20% on nations such as Vietnam, Indonesia, and the Philippines. Against that background, the 25% tariff on Indian imports is quite high.
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