India Stays Tactical On Tariffs, But Modi's Cosies Up To Trump

US president Donald Trump would be horrified if told that he is proving Lenin right, but that is what he has been doing in the eight weeks since he assumed office. Obviously, he is not vindicating everything that Lenin said, just the observation that there are decades in which nothing happens and there are weeks in which decades happen. Trump has been making decades happen.

Global events continue to overshadow India’s economic horizon. The Fed has refused to cut interest rates, given the threat to growth from Trump tariffs and tantrums. Policy action to lower rates in the US could have pushed some capital towards india’s stock markets, that seem to have bottomed out and are gingerly moving up. At the same time, European developments promise to divert footloose capital there. Even as economic prospects tank, with Tump’s tariff war threatening to broaden its sweep, as European retaliation to Trump’s levy of 25% tariffs on steel and aluminium imports has provoked Trump to promise escalation to other goods.

The European Central Bank has lowered its policy rate by 25 basis points, even as the OECD lowered its growth forecasts: to 3.1% for the world economy, 1% for the eurozone, and 0.4% for Germany. Meanwhile, the German parliament has voted to remove the debt brake, the name given to a 2009 constitutional amendment that limits the structural fiscal deficit to 0.35% of GDP (cyclical deficits can be higher), to create an infrastructure fund worth half a trillion euros, and to exempt anticipated higher defence spending from the debt ceiling. Higher defence outlays across Europe are necessary for Europe to take on the burden of defending itself, instead of depending on American firepower that Trump has demonstrated cannot be taken for granted.

Buy European Only

Europe is not only planning to spend more on defence but also to make those acquisitions as European as possible. Rheinmetall, a German defence contractor, has seen its share price go up 48% over the last month, and Morgan Stanley expects its share price to double to €3,000. It would be reasonable to expect major European defence equipment makers to swell their order books, as governments increase their arms budgets and cut back on external aid and domestic welfare. The UK has decided to lower its aid budget to 0.3% of Gross National Income, from the current level of 0.5% of GNI, in order to elevate defence expenditure to 2.5% of GDP. The UK has also decided to trim its welfare payments.

A trend towards consciously buying European products, while boycotting American ones, is growing across Europe, reports AP, the trend being strongest in Denmark, where resentment against Trump’s threat to take over Greenland is the most acute — Greenland is a Danish protectorate. European company sales would go up, even as American company sales dip. Tesla sales are down 71% in the first two months of 2025 in Germany, and, in a repeat of Americans taking out their anger against billionaire Elon Musk by attacking Tesla showrooms and cars, Tesla cars have been torched in Berlin as well. Tesla sales are down not just in Europe, China and Australia, but in the US as well.

Does India’s Response Make Sense?

China’s leading electric car maker BYD has shown off a technological advancement, which allows its electric cars to be recharged enough to travel 400 km (250 miles) in five minutes, making it comparable to refuelling a conventional internal combustion engine vehicle. Tesla is protected in the US by the Joe Biden-imposed 100% tariff on Chinese electric vehicles, but Tesla’s popularity has taken a big hit, as a result of Musk’s role in the Trump administration.

Canada, Europe and China have talked tough, in response to Trump’s tariff threats. Mexico has not announced specific tariffs on its American imports but has said it would retaliate with proportionate tariffs against what is universally seen as American bullying.

This makes India’s emollient response to US tariff threats seem gallingly weak. But it makes sense for India to negotiate the best deal it can, instead of taking an abrasive stand vis-à-vis the US. India needs US help vis-à-vis China, and would not like to succumb to American pressure to end arms purchases from Russia. In fact, India is building on its Indo-Russian defence joint venture Brahmos Aerospace’s successful missile sales to Southeast Asian countries to expand arms sales. This calls for careful calibration of its rhetoric. That said, Prime Minister Narendra Modi’s trashing of the United Nations, in his American podcast debut recently, echoing the isolationist streak in MAGA Republicanism, would appear to have been self-demeaning appeasement of Trump. His joining Trump-owned social media platform Truth Social, after Trump posted the Modi podcast on the platform, is relatively more dignified.

The fall in India’s consumer price index is a good augury for a rate cut by the Reserve Bank Of India, given the softening of rates elsewhere. Bank of Japan’s decision to not raise rates must be counted as part of the dovish trend.

No Sign Of Geopolitical Stability

Expected gains to economic stability from the cessation of active hostilities around the world have been postponed.

The Gaza war has erupted again, with Israeli air strikes on Palestinian targets that have killed more than 400 people. For Prime Minister Netanyahu, to stop fighting is to be abandoned by the far-right allies that prop up his government, and face prosecution for corruption, not to speak of fresh elections, as his government loses its majority.

While Ukrainian president, Volodymyr Zelensky, chastened after his public humiliation at the White House jointly by the US President and his Vice President on February 28th, fell in line, after US negotiators sought a monthlong ceasefire, in return for the resumption of American military aid and intelligence sharing, Russian President Vladimir Putin has revealed himself to be markedly less inclined to jump through the hoop held out by the US President. Putin has ruled out a ceasefire while Ukraine rearms itself with American weapons. The concession he has made is that he would stop attacking Ukraine’s energy infrastructure if Ukraine agreed to stop attacking Russia’s energy infrastructure. Ukraine has virtually vacated its occupation of the Kursk region in Russia.

The latest on the Trump-Ukraine front is that Trump wants to take over Ukrainian power plants, in addition to the country’s minerals, including the Zaporizhzhia nuclear power plant, Europe’s biggest.

In Syria, supporters of the new, anti-Assad regime have been slaughtering Alawites, the Shiite Muslim group from which the Assads hailed.

As peace refuses to break out, the prospects dim of energy prices coming down in a hurry, as a result of anaemic economic activity around the globe.