'Hard To Negotiate With Gun On Head': Raghuram Rajan On Trump Tariffs

Days after US President Donald Trump imposed an additional 25% tariff on Indian goods, former Reserve Bank of India governor Raghuram Rajan has said that the the current tariff talks between the two countries are not about a balanced trade deal, but an 'exercise of power'. Trump's 25% hike has brought the total duty on Indian exports to the US to 50% - among the highest of any American trading partner.

In a recent interview with Valor International, the economist suggested that India may stand to gain through further liberalisation in various areas, but added that it's "hard to negotiate with a gun to your head".

"On trade, there are many areas where liberalisation would be good for India," he, however, noted.

"And to be fair to India, there are areas—especially agriculture—where our producers are much smaller and poorer than in the US and face heavily subsidized competition," Rajan said.

Opening the market too quickly could harm vulnerable farmers, especially since India has no strong social safety net. "Both sides have a case. But the mistake was thinking this would be a patient negotiation toward a fair agreement, rather than one side saying: 'Here’s what you’re going to give me'," he told Valor International.

Rajan also said the time has passed for the countries to mount a joint response to US tariffs and that the BRICS group is in no position to coordinate an organised reaction. Amid uncertainty, he hopes “sanity will prevail” in US relations with the world’s most populous country. 

According to Rajan, who is also a professor of finance at the University of Chicago, stopping purchases of Russian oil would not be a disaster for India, since current prices aren’t much higher than for Russian crude. If Russian oil were cut off entirely, prices would rise, but India could handle that.

''The bigger issue is political,'' he said, adding, ''An overt public decision to stop buying from Russia would be seen domestically as bowing to US pressure, which plays badly in any democracy." If the US had quietly asked India to phase out Russian oil, it might have been acceptable. "Making it public, and tying it to a tariff threat makes it much harder politically," he said.

Rajan agrees that on trade, there are many areas where liberalisation would be good for India. "Lowering tariffs can help our economy. But again, it’s hard to negotiate 'with a gun to your head.' I hope that tempers cool and talks resume, because a 50% tariff is unsustainable—not just for India, but also for the US, which risks alienating a country it hopes will be a strategic partner," he said.