US Tariff Threat A Classic Case Of Game Theory: NITI Aayog’s Arvind Virmani

Amid rising concerns over possible US tariffs on Indian exports from Aug. 1, Arvind Virmani, member of NITI Aayog, has described the move as a “classic case of game theory.” In an interview with NDTV Profit, Virmani explained that such statements are typically strategic—meant to enhance the credibility of a threat rather than signal a definitive policy shift.

“This appears to be a classic case of game theory. The US statement seems aimed at enhancing the credibility of a threat.”

He stressed that these moves are about shaping perception, but India must not weaken the case of its negotiators.

“Don’t believe in everything what opponent said,” he added.

On Wednesday, US President Donald Trump reignited trade tensions by warning that India could face tariffs in the range of 20–25%, as negotiations for a trade deal continue to drag.

While Trump clarified that the final rate hasn’t been decided, he reiterated his “tariff king” stance, stating that India has historically imposed higher tariffs than most countries—despite being a “good friend.”

With hopes of an interim trade deal fading, talks are now focused on completing the first tranche by a September–October deadline.

However, a 20–25% tariff hit would erode India’s competitive edge temporarily, especially against peers like Vietnam (20%), Philippines (19%), and Indonesia (19%), all of whom currently face lower duties. In contrast, the EU, UK, and Japan have already secured more favourable tariff agreements in the 10–15% range.

On losing India’s competitive edge, Virmani pointed to a shifting global trade landscape, where India’s relative advantage is being challenged.

“The baseline of zero duty has shifted. Many conventional producer countries are operating at an average tariff below 5%."

He noted that these developments are part of a broader negotiation strategy, suggesting that tariff structures and positioning must evolve accordingly.