The Fallout of US Tariffs

However, if the current trend of protectionism in the US extends to other goods such as pharmaceuticals, or to services such as software, the US faces the prospect of losing this support base. Further, if the US were to lose the support from the south, India-US relationship will again be seen largely from the prism of the Pakistan factor and the economic partnership will have to take a backseat.

The India—US defense partnership will also be weakened if trade barriers hinder the relationship between the two countries. Purchasing defense equipment is a strategic decision, not a transactional one for India. The risk of being overly dependent on foreign powers can be mitigated if we procure military equipment from countries with which we have extensive economic ties. However, if general trade between the US and India suffers due to increasing tariffs, defense procurement from the US would no longer serve a strategic purpose and India will lose the strategic leverage that comes from being able to favour a country which can give us something more than just military equipment.

Finally, tariffs will also affect business and investment decisions. Given the particular state of global finance, with increasing inflation in the US (partially caused by increased import costs) and higher interest rates as a result, the flow of portfolio and direct investment from the US to India will reduce. With India’s banking sector facing a severe crunch due to high amount of non-performing assets, the need for private sources of funding for Indian companies will be acute. Simultaneously, China is continuously looking for opportunities to invest abroad, as witnessed by its aggressive buying of assets in other countries. The void that will be left by the US will be readily filled by China, and that is an outcome that neither the US nor India will be too keen to witness.

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