Key Points

A new report by the Australian Institute of International Affairs (AIIA) argues that coercive measures risk undermining decades of trust built between Washington and New Delhi, while also pushing India closer to China.

The US move comes after Trump announced on July 30 an additional 25 per cent penalty on Indian imports, on top of an existing 25 per cent duty, citing India’s purchase of Russian oil.

But analysts note that India’s energy decisions are dictated by market realities. With traditional suppliers redirecting crude to Europe, India turned to discounted Russian oil to secure affordable energy for its 1.4 billion people.

As India’s Ministry of External Affairs has said, the imports are meant to ensure “predictable and affordable energy costs.”

The AIIA report stresses that India is not an economic rival but a strategic partner, crucial to America’s Indo-Pacific strategy.

Over the past two decades, ties between the two nations have strengthened through milestones such as the 2008 civil nuclear deal and expanding defence cooperation.

In 2024, bilateral trade in goods reached $129 billion, with a shared goal of scaling it up to $500 billion by 2030.

India’s role in the Quad and its cooperation in counterterrorism make it indispensable to the US, the report notes.

By contrast, the United Kingdom’s approach is highlighted as an example of constructive engagement.

On July 24, India and the UK signed a landmark Free Trade Agreement (FTA) after three years of negotiations.

The deal eliminates tariffs on 99 per cent of Indian exports, lowers duties on British goods like whisky and cars, and improves professional mobility.

With trade expected to double to $120 billion by 2030, the FTA shows that respecting India’s priorities -- such as safeguarding its agriculture and MSME sectors -- can deliver prosperity without confrontation.

While the tariffs have raised geopolitical concerns, rating agency S&P Global Ratings has downplayed their economic impact.

Speaking at a webinar on Asia-Pacific Sovereign Ratings on August 13, S&P Director YeeFarn Phua said India would not be hit hard because it is “not a trade-driven economy.”

Exports to the US account for only 2 per cent of India’s GDP, and major export categories like pharmaceuticals and consumer electronics are exempt from the new duties.

“Over the longer term, we don’t think this will be a big hit on India’s economy, and therefore, the positive outlook on India remains,” Phua said last week.

- IANS