Trade now weaponised: Raghuram Rajan calls US tariffs a wake-up call for India

Former Reserve Bank of India Governor and noted economist Dr Raghuram Rajan has described the steep tariffs imposed by the US on Indian exports as "deeply distressing" and a clear "wake-up call" for India to reduce its dependence on any single trade partner.

Speaking against the backdrop of Washington’s 50 per cent tariffs on Indian goods, including an additional 25 per cent penalty linked to India’s purchases of Russian oil, that came into effect on Wednesday, Dr Rajan warned that trade, investment, and finance have increasingly been weaponized in today’s global order and that India should tread carefully.

"This is a wake-up call. Let us not become dependent on any single country to a large extent. Let us look east, to Europe, to Africa, and continue with the US, but unleash reforms that will help us achieve the 8–8.5% growth needed to employ our youth," Rajan said during an exclusive conversation with India Today TV on Wednesday.

While India has been subjected to a harsh levy by the Trump administration for "buying Russian crude", the largest importer of Russian oil- China, and Europe- who has been buying considerable amounts of energy products from Moscow, have escaped similar treatment at the hands of Washington.

Rajan suggested India reassess its policy on Russian oil imports. "We need to ask who benefits and who is hurt. Refiners are making excess profits, but exporters are paying the price through tariffs. If the benefit is not large, perhaps it is worth considering whether we should continue these purchases".

Comparing India with China, Rajan said the issue was not fairness but geopolitics. "We should not be dependent on anybody to a large extent. Trade has been weaponized. Investment has been weaponised. Finance has been weaponised. We must diversify our sources of supply and markets of export," he pointed out.

The former Chief Economist at the International Monetary Fund (IMF) further argued that India should view the crisis as an opportunity.

"By all means, work with China, Japan, the US, or anyone else. But don’t be dependent on them. Ensure you have alternatives, including self-reliance where possible," Rajan said.

He emphasised the need for structural reforms to improve the ease of doing business, integration into global supply chains, and stronger competitiveness among domestic firms.

Calling it a "blow" to US-India ties, Rajan further expressed concerns that the move will particularly hurt small exporters such as shrimp farmers and textile manufacturers, putting livelihoods at risk. "It is also harmful to the US consumer, who will now buy goods at a 50 per cent markup".

On the rationale behind Trump’s tariff policies, Rajan pointed out three drivers: the long-held belief that trade deficits reflect exploitation by other countries; the view that tariffs bring in cheap revenues supposedly borne by foreign producers; and, more recently, the use of tariffs as punitive instruments of foreign policy. "It is essentially an exercise of power. Fairness is not the issue here," he said.

Specifically on India, Rajan noted that New Delhi had expected tariffs in line with other Asian nations — around 20 per cent — and had hoped the Modi-Trump relationship would secure an even better outcome.

"Something changed midway in the negotiations," he said, pointing to US accusations that India was enabling Russian oil sales. "Clearly, the relationship has broken down," he said.

Replying to a question about White House Trade Adviser Peter Navarro's allegations against India of "profiteering" through Russian oil, Rajan said, "What clearly seems to have happened is, at some point, the president (Trump) has decided that India is a country which is not playing by the rules that he says and needs to be singled out. Navarro would not write in the Financial Times without permission".

Navarro, a longtime Trump aide, said last week that Indian refiners were cashing in while fuelling the (Ukraine) war (by buying Russian oil). "They don’t need oil -- it’s a refining profiteering scheme," he argued.

INDIA-US TIES STRAINED

Ever since Trump's announcements of 'reciprocal' tariffs in February this year and the eventual 50 per cent duty on Indian imports, bilateral ties between India and the US have been in a downturn.

While Trump continued stressing the "fairness" of steep tariffs on India, the Modi government has been resilient, saying it won't bow down to any pressure and keep buying Russian crude, keeping in mind the interests of its own people.

India has also called out the US for discriminatory treatment, referring to the Chinese imports of Russian oil and European purchases of Russian energy which continue unabated.

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