Trump's personal annoyance over India's decision not to mediate on Kashmir led to the imposition of 50% tariffs.

In a sharp critique of recent U.S. trade policy, investment bank Jefferies has claimed that the United States’ sudden imposition of a 50% tariff on Indian goods has more to do with former President Donald Trump’s personal frustration than with any legitimate trade dispute. The new tariff regime, which took effect on August 27, could cost the Indian economy between $55–60 billion, according to Jefferies. Key sectors like textiles, footwear, jewellery, and gems — industries that employ millions of Indian workers — are expected to suffer the worst impact. Personal Grudge Over Diplomatic Rebuff According to the report, the harsh tariffs were driven by Trump's reaction to India’s refusal to let him mediate in the long-standing India-Pakistan conflict. Trump had publicly claimed credit for bringing about a ceasefire between the two nuclear-armed neighbors, even stating on social media that the U.S. had helped broker a “full and immediate” end to military action. However, India’s Ministry of External Affairs promptly denied any American role. It clarified that the ceasefire was achieved through direct talks between the Directors General of Military Operations (DGMOs) of India and Pakistan — initiated by Pakistan, without U.S. involvement. “Trump’s disappointment over being denied a chance to play global peacemaker — and potentially win a Nobel Peace Prize — appears to be the real trigger behind these tariffs,” Jefferies said. Trade Deal Collapse and Escalation The report highlights that a U.S.-India trade agreement was nearly finalized earlier in the year. However, the situation deteriorated rapidly after a militant attack killed 26 Indian tourists in Kashmir in April, sparking a four-day military flare-up with Pakistan. The trade deal fell apart in the aftermath, and relations soured further. “The tariffs are not simply about trade imbalances,” Jefferies argued. “They’re the result of a series of unfortunate events — and a bruised ego.” Agriculture and Market Access: A Longstanding Divide Another major sticking point remains agriculture. The U.S. has long pushed for access to India’s vast farm and dairy markets, but successive Indian governments have consistently refused, citing the livelihoods of nearly 250 million people dependent on agriculture. “No Indian government is going to allow foreign agricultural imports to flood the market — the consequences for rural employment would be devastating,” the report said. Oil, Ukraine, and the Hypocrisy Debate Tensions have also been rising over India’s continued purchases of discounted Russian oil. As Trump struggles to fulfill his promise of ending the Ukraine war, critics in Washington have turned their attention to India’s energy ties with Moscow. But India has pushed back hard. At a recent forum, External Affairs Minister S. Jaishankar pointed out that Europe remains the biggest consumer of Russian oil, much of which is refined in India. He called this criticism from the West “hypocritical.” China Looms Larger Jefferies warned that escalating U.S.-India tensions could push New Delhi closer to Beijing. Direct flights between India and China are set to resume in September after a five-year pause. Meanwhile, Indian imports from China are already at $118 billion annually — accounting for 16% of total imports, and growing at 13% year-on-year. “The longer these tariffs stay in place, the more likely India is to diversify further towards China and away from the U.S. — a strategic loss for Washington,” the report cautioned. Impact on GDP and Business While India’s services sector — especially IT and global capability centres that export over $200 billion — remains largely unaffected, the damage to manufacturing and small businesses is likely to be significant. “If the tariffs continue, India’s GDP could take a hit of 1 to 1.2 percentage points,” Jefferies estimated. Corporate earnings may also see a similar decline. India’s nominal GDP growth is already slowing, projected to fall from 10% in FY25 to around 8.5–9% in FY26 — the lowest rate outside the COVID-19 years. India’s Economic Response To cushion the impact, the Indian government has rolled out a set of measures. These include income tax cuts for the middle class and an accelerated Goods and Services Tax (GST) reform. The existing four GST slabs (5%, 12%, 18%, and 28%) are set to be reduced to just two — 5% and 18% — by September. The Reserve Bank of India has also adopted a more accommodative monetary policy, cutting the repo rate by 100 basis points this year. More rate cuts could be on the table if inflation remains low. Jefferies’ Final Verdict The report concludes that the tariffs stem more from Trump’s personal disappointment than from sound economic policy. It warns that if the duties are not reversed soon, they could damage not just India’s economy, but also America’s broader strategic interests in Asia.

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