India's Trade Options in the Face of the US-led Dilemma of Autonomy and National Interest

Analysis

By Ajay Kumar Mishra

Introduction

US President Donald Trump’s executive order, which imposes an additional 25 percent tariff on Indian goods, seems to set up a strategic dilemma for India: to protect its economic interests by importing inexpensive oil from Russia or to forfeit its strategic independence by complying with US demands. Furthermore, the US is pressuring India to halt its purchases of Russian oil, which is currently priced at a cap of USD 60 per barrel. Simultaneously, European firms have been allowed to manage and ensure Russian oil shipments to third parties as long as the sales remain below the capped price—this strategy aims to mitigate the consequences of sanctions on the global oil market while ensuring Russia receives a reduced profit from these transactions. Seizing the opportunity for low-cost imports and value addition through refinement, India has elevated its crude oil imports from a mere 0.2 percent prior to the Russia-Ukraine conflict to now making up 35-40 percent of its total crude imports. In addition to boosting India's economy, inexpensive Russian oil has proven profitable for refiners, who process this crude and export the refined products to countries facing shortages, including those in the European Union that have prohibited direct crude oil acquisitions from Russia.

Therefore, India's decision to import crude oil, refine it, and market its by-products is driven by market dynamics. This article will examine the current illusion of the need to balance strategic independence with national interests amidst increasing US bilateralism and the weaponization of trade.

US Trade Weaponization 

In a chapter titled ‘The Global Trade Reset in the 2000s and India’s Trade Policy Priorities’ (referred to as GTR) in the edited volume “A World in Flux,” Amita Batra examines the historical implications of Donald Trump's selective and biased bilateral approaches, which undermine the principles of a multilateral rules-based system aimed at reducing the trade deficit. For example, the US's selective and biased trade actions can be observed in its dealings with Europe and Russia, which encompass not only energy resources but also fertilizers, mining products, chemicals, iron and steel, machinery, and transportation equipment. Additionally, the US continues to import uranium hexafluoride from Russia for its nuclear sector, along with palladium for electric vehicles, fertilizers, and chemicals.

By tracing the origins of hegemon-centric bilateralism regarding significant issues for developing nations—such as environmental and labour laws, which should ideally be addressed in multilateral settings—GTR illustrates how this approach acts as a weapon against developing countries. For instance, the U.S.-Mexico-Canada Agreement (USMCA), which is a renegotiated version of the North American Free Trade Agreement (NAFTA), has expanded the scope and complexity of labour provisions, thereby establishing a more arduous precedent and standard for future trade agreements with the U.S.

Similarly, in their paper titled ‘A Framework for Geoeconomics,’ Clayton et al. analyze how the hegemon’s geoeconomic influence leverages financial and trade relations to attain geopolitical and economic objectives through mark-ups, import restrictions, tariffs, and political concessions, manipulating global equilibrium through input-output amplification. Furthermore, Robert Blackwell and Jeniffer Harris contend in their book ‘War by Other Means: Geoeconomics and Statecraft’ that the United States’ bilateral approach is driven by

geoeconomics, where economic tools are employed to advance national interests, leading to the most oligarchic and deal-oriented aspects of mercantilism. For example, pharmaceuticals are notably exempt from tariffs, highlighting the inconsistency of the US's attempts to address its trade deficit with India. Given their price inelasticity, pharmaceuticals were spared from new duties because high tariffs would have directly increased drug prices and provoked a domestic reaction. The implication is clear: Tariffs have not been utilized to rectify trade disparities but instead serve as a political tool. India’s Ministry of External Affairs has rightly labelled these actions as unfair, unjustified, and unreasonable.

Strategic Autonomy and National Interest 

India’s long-held commitment to strategic autonomy aids, in a Foucauldian perspective, in navigating power dynamics through antagonism of strategies. It suggests that a country is practising strategic autonomy if it can adopt and implement conflicting strategies to engage with a diverse range of countries and regions. For example, a strategy that appeals to the US may irritate China, but it does not limit India’s ability to pursue it. The evaluation of a strategy is grounded in national economic interests based on free market options, as defended by India’s Ministry of External Affairs when justifying its purchase of less expensive Russian oil in light of U.S.-imposed penalties. Defining strategic autonomy through market practices to serve national interests, in contrast to US beliefs, indicates that there is no conflict between strategic autonomy and national interests. In fact, a rule-based multilateral trading system is designed to support national interests through strategic autonomy, allowing member countries the freedom to make their decisions based on free market principles. 

Consequently, the US approach to bilateralism creates a false perception of a conflict between strategic autonomy and national interest, while applying arbitrary tariffs for unclear reasons to promote bandwagon diplomacy as the sole means to achieve national interest in a dominant global trading environment.

India's Trade Options 

Drawing lessons from GTR, one could advocate for an expansion of India’s trade agreements to include a wider range of regional partners beyond its conventional ones. This chapter challenges the contradiction between national interest and strategic autonomy by viewing Free Trade Agreements (FTAs) not merely through the lens of bilateral trade deficits but as tools for integrating into Global Value Chains (GVCs) grounded in strategic economic decisions. Consequently, it posits India forming GVC connections with the ASEAN-East Asia trade bloc, which uniquely adheres to a rule-based global trade framework in Regional Trade Agreements (RTAs).

This approach helps India avoid aligning with another regional competitor, namely China, while trying to navigate US tariffs. Furthermore, a partnership with China could significantly undermine India’s appeal as an investment hub for Western companies pursuing a China+1 strategy. Thus, it advocates for India to reduce its reliance on its traditional export markets like the U.S. and the E.U. and to leverage a flexible approach to the evolving landscape of RTAs, all while steering clear of forming any strategic economic alliances with China. Additionally, GTR recommends that India refrain from creating comprehensive supply chains domestically under the Production-Linked Incentive (PLI) scheme, as it may not be cost-effective when it lacks the opportunity to take advantage of a flexible array of strategic trade partnerships with other nations. The flexible structure of regional trade factors is aimed at balancing the competing strategies involved in selecting trade partners. The message is clear: true sovereignty and strategic autonomy lie in diversification, not in substitution.

Disclaimer: This paper is the author’s individual scholastic contribution and does not necessarily reflect the organisation’s viewpoint.

Ajay Kumar Mishra- The author teaches Economics at Lalit Narayan Mithila University, Bihar, India. He has earned a PhD from the Centre for South Asian Studies, JNU, New Delhi, India.