IT IS UNUSUAL to experience humiliation, vindication and a defining test all at the same time. But that is India’s predicament today. President Donald Trump has undone 25 years of diplomacy by embracing Pakistan after its conflict with India in May, and now singling out India for even higher tariffs than China. He cannot have thought through how the world’s most populous country and fifth-largest economy would react.
Narendra Modi, India’s prime minister, recently laid out a path for a muscular, more self-reliant nation. He is also about to meet Xi Jinping in China, after a bitter four-year Sino-Indian military stand-off in the Himalayas. For America to alienate India is a grave mistake. For India it is a moment of opportunity: a defining test of its claim to be a superpower-in-waiting.
Mr Trump’s humiliation of India comes in two flavours. On August 27th, after condemning it for buying Russian oil, America’s president imposed a 25% tariff surcharge, on top of the existing 25% import tariff on Indian goods. Buying Kremlin crude is grubby. But given that India does so through a price-cap scheme run by the West, that it sells refined petroleum products to Europe, and that much of the world, including China, also buys Russian oil, the surcharge makes it look as if India has been singled out for special punishment.
The other humiliation is Mr Trump’s love-in with Pakistan. After a terrorist attack in India that Mr Modi blamed on Pakistan, the two rivals fought a four-day skirmish in May, involving over 100 warplanes and raising fears of a nuclear clash. Yet Mr Trump is now exploring crypto and mining deals in Pakistan. He has dined in the White House with Field-Marshal Asim Munir, its hardline army boss and de facto ruler, who is proposing Mr Trump for a Nobel peace prize. America has offered to mediate over disputed Kashmir, breaking its own long-standing position and an Indian taboo.
America’s failure to support India on a core security interest and decision to punish it over trade have shattered trust among Indians. Since 2004 American presidents have welcomed India as a rising democratic power opposed to Chinese domination of Asia. Its $4trn economy and $5trn stockmarket dwarf those of Pakistan, wracked by instability, debt crises, terrorism and dependence on China. This is a giant own-goal for America’s interests that compounds its neglect of NATO in Europe.
That explains the second emotion among some in India: vindication. Since independence in 1947, India has avoided alliances, although the label it uses has changed from “non-alignment” to “multi-alignment”. It relies on Russia for some weapons, and on Europe, Israel and America for others. China supplies manufacturing inputs; the West tech and markets.
In 2020, however, when relations with China went into a deep freeze after the border skirmishes in the Himalayas, some in Washington hoped this might presage a quasi-alliance with America. Intelligence has been shared, and joint US-India military exercises, which also included Japan and Australia, led to a strategic deal in 2024 on closer defence ties.
Indians sceptical of global entanglements feel vindicated by the events of the past few months. As they always warned, dependence on America is dangerous. Mr Modi’s visit to China is meant to signal that India has options.
Humiliation and vindication pose a test of India’s capabilities and resilience. For 11 years Mr Modi has pursued nation-building, modernisation and centralisation. There have been setbacks. An industrialisation drive has had modest results and failed to produce the new jobs India needs. The education system is poor. Mr Modi often lapses into Hindu chauvinism.
But there have also been successes. New roads and airports, and digital payments and tax platforms, have created a giant single market. The financial system is stronger, with deep capital markets built on domestic savings, a nearly balanced current account and prudent banks. India is now less likely to attract supply chains as part of a “China plus one” boom, but all this will help it weather the trade shock. Growth is expected to remain above 6%, making it the world’s most dynamic big economy and, the IMF says, its third-biggest by 2028.
The danger is that America’s aggression revives slumbering autarky and anti-Westernism. In his Independence Day speech from the Red Fort in Delhi on August 15th, Mr Modi emphasised more self-reliance. But were India to go further and turn inwards, it would threaten its services industry, which now exports almost as much as all other sectors put together. Its tech-services firms make at least half their sales to American customers, including blue-chip firms with “global capability centres” in India. The country is OpenAI’s second-biggest market by users. And to industrialise faster, India needs more machinery imports and inputs from China.
Better for India to try to limit the damage. It should make rational concessions, including cutting tariffs and buying less Russian oil and more American natural gas. America and India still have enduring bonds, not least a huge diaspora. Mr Modi is right to go to China: boosting India’s manufacturing will mean closer trade links in the next decade, as well as American tech. He should seek new trade deals, adding to recent ones with Britain and the United Arab Emirates.
Look out to look in
A second priority should be reform at home. India’s fate—and its choice—is to be independent. Size and dynamism matter more than ever, to secure better terms in deals, pay for defence and raise living standards even if world trade slows. India has been waiting for several years for more big-bang reforms, including deregulating business, reforming the courts, and modernising agriculture, land and power distribution.
Many of these require co-operation between India’s states and the central government. Encouragingly, Mr Modi has just said he will simplify the goods-and-services tax and deregulate the economy, emphasising “Next Gen Reform”. After 11 years in office, he needs to go further and faster. To confront India’s deepest internal challenges has always been in its national interest. In a hostile world, it is also the best defence.
About the Author
