Ahead of the August 25 talks, President Donald Trump has doubled tariffs on Indian goods to 50 per cent, citing oil and defence purchases from Russia, while underlying tensions stem from US pressure to cut India’s food import tariffs from 40.2 per cent to zero
Five rounds of trade talks between India and the US have failed to resolve key differences, and before the scheduled sixth round on 25th August, US President Donald Trump imposed a 25 per cent tariff on India, doubling it a week later as a penalty for India’s purchase of defence equipment and oil from Russia. The main friction is the US demand for India to open its agriculture, dairy, and fisheries sectors, reducing India’s average food import tariff from 40.2 per cent to zero, a move India resists due to concerns over domestic impacts. India’s existing trade deals with Australia, Saudi Arabia, and the UK do not reduce food import tariffs, and the national tariff average remains high at 49 per cent. This standoff highlights that the US demands threaten India’s agricultural sector and economic sovereignty.
International agricultural prices are artificially suppressed by heavy Government subsidies worldwide and Indian farmers, who constitute 44 per cent of the country’s workforce, can’t compete. While subsidies pull down international prices, Indian prices go up because of labour-intensive agriculture and lower yields. Also, 80 per cent of our land holding is at subsistence level. Since international prices are lowered by subsidies, Indian farmers have very little scope to export. The zero tariff will ruin Indian agriculture, cause massive unemployment and disrupt India’s food security. This may lead to dependency on food imports and a setback on our self-reliance.
The experts, however, have opined that the impact of the tariff on India’s economy would be small as the rise in tariff would be borne by US importers and consumers. Trump’s trade counsellor Peter Navarro accused India of using US dollars to buy oil from Russia, which in turn uses it to finance weapons to kill Ukrainians. When asked why China is not being penalised for the same, he admitted, ‘we don’t want to hurt ourselves.’
Türkiye and China also buy Russian oil in still larger quantity, but so far the US administration has only accused India of enabling Russia with the revenue that fuels war in Ukraine. Journalists questioned Donald Trump as to why India is isolated, when even the US itself is importing uranium hexafluoride for nuclear energy, palladium for using it as catalytic converters in vehicles as well as applications in electronics and chemicals & fertilisers. His response was that he did not know about it and he will check and revert.
He never reverted. Even the European Union has been purchasing Russian gas to meet energy requirements. In the year 2024 alone, they have purchased gas worth 297 billion euros. As soon as the Russia-Ukraine war began in February 2022, Brent crude oil prices shot up from $65 a barrel to more than $100 a barrel. Russia expanded its oil production to earn revenue to fund the war. Despite western sanctions on Russia, the US approved oil purchase from Russia with a price cap of nearly $60 per barrel. Longer distance for transportation of Brent from Russia to Indian ports involved higher insurance and transport cost, yet India could initially save $15 a barrel, which has now been shrunk under $5 a barrel.
Time and again, India has made its stand clear that the country’s interest is foremost and it is the Government’s responsibility to provide energy at minimum cost. For the first time, Trump has objected to our oil import from Russia and without any forewarning he stepped up the tariff and also inflicted penalties totalling up to 50 per cent.
Experts are assigning different reasons for this trigger; like, India denied Trump to take credit for the ceasefire of its hostilities with Pakistan in operation Sindoor. The White House though announced that the President masterminded many ceasefires between warring countries namely Egypt and Ethiopia, Democratic Republic of Congo and Rwanda, Israel and Iran, Thailand and Cambodia and India and Pakistan and proposed a Nobel Peace Prize for him.
Before his inauguration for the second term, Trump had said that he would stop the Russia-Ukraine war within a day, but that has not happened, and it has frustrated him. Pakistan used a cryptocurrency gambit and backed its bid for the Nobel Prize and escaped with one of the lowest tariffs of 19 per cent. China halted the import of soybeans from the US. As the harvest is approaching, it seemed like the US was looking for a buyer in India. Soybean farmers are a key MAGA base for Trump.
Earlier in April, when the US bullied China and imposed a tariff of 145 per cent, it retaliated by imposing export control on several rare-earth elements namely neodymium, dysprosium, yttrium, etc., critical for technological advancements. India was also affected. In 2010, China used the tactics against Japan, when the two countries had strained relations. Rare earth is used in all emerging technologies from mobile to missile; the US bent and extended the time limit for trade deal negotiation with China till 12th August.
Their trade deal in Stockholm is not yet concluded, and the US is contemplating another three months. US Treasury Secretary Scott Bessent, who is confident of a further extension, said, ‘Rare earth magnets, which Beijing had used as a negotiating card, are flowing from China now. China’s capacity development in manufacturing is enormous and has produced goods up to 200 per cent of the global requirement, and is quite keen on capturing the US market. It is give and take, and because of its rare earth elements’ (REEs) dominance, China will never be in a situation India has found itself in.’
China, which accounted for 38 per cent of global production of REEs in 1993, has increased to 97 per cent in 2013. Subsequently, other countries have stepped up REEs production. At present the USA, Australia, and Malaysia occupy 2nd, 3rd, and 4th positions respectively and India is the fifth largest producer of REE. Brazil, Canada, South Africa, Sri Lanka and Thailand also contribute to global production. Lanthanum (La), Cerium (Ce), Praseodymium (Pr), Neodymium (Nd), Promethium (Pm), Samarium (Sm), Europium (Eu), Gadolinium (Gd), Terbium (Tb), Dysprosium (Dy), Holmium (Ho), Erbium (Er), Thulium (Tm), Ytterbium (Yb), Lutetium (Lu), Scandium (Sc), and Yttrium (Y) are the 17 REEs. The atomic number of the first fifteen REEs goes from 57 to 71, whereas the last two i.e. Sc and Y have atomic numbers 21 and 39, respectively. In other words, La has mass number 57, Ce has 58 and likewise in each successive case it increases by 1 till Lu has an atomic number of 71. All elements from La to Lu are called lanthanides and are also known as transition elements or f-block elements. One additional electron is filled in each successive element’s 4f orbital.
The most important properties of this block are that the elements form coloured compounds and also possess high magnetic strength. Further, the elements of the block form coordinate compounds, which are generally unstable as compared to ionic and covalent compounds.
These elements are characterised by high density, high melting point, high conductivity and high thermal conductance. REEs usually occur in bastnaesite (a fluorocarbonate in igneous rocks), xenotime (yttrium phosphate found in mineral sand deposits), loparite occurring in alkaline igneous rocks, and monazite (a phosphate). Neodymium/dysprosium, iron, and boron form magnets that work in temperatures ranging from — 20 to 300 degrees and have a variety of usages in all emerging technologies like drones, robots, missiles, aerospace, defence equipment, electric vehicles, semiconductors, computers, mobiles, wind turbines etc.
These magnets are 12 times as powerful as ferrite magnets used for quiet defacement in a household fridge. Its use in drones, robots, and other equipment is essential for increasing the torque and speed, which enhances precision and efficiency.
Samarium cobalt magnets are eight times as powerful and are used in many of the advanced technologies.
India should take the opportunity of diversifying its export of textiles, leather goods, electronics etc. to other countries. India’s states should focus on reforms to attract more investments.
The writer is retired Head of Karnataka Forest Force and presently teaches ‘Economics’ in Karnataka Forest Academy
