Generally, on the dance floor, it takes two to tango. But the traditional American folk square dance involves more participants. On the even wider floor of tariffs and trade, it is salsa with several dancers. The US President Donald Trump signed orders that imposed a 50 per cent tariff on India “in response to its continued purchase of Russian Federation oil.” He took the decision on his own.
However, when it came to doing the same with China, the president invoked support from the European allies. Recently, he urged the NATO nations to take the initiative, which would help the former to pursue a similar action. Even in the case of sanctioning Russia for the nth time, Trump said that Washington was prepared to do so only if the European partners stopped purchases of Russian oil. He wanted a joint, multilateral and coordinated decision.
Trump believes that the only way to end the Russia-Ukraine war was for NATO to stop buying oil from Russia, and collectively impose a 50-100 per cent tariff on Chinese products. Like India, China is one of the largest buyers of Russian petroleum. The president alleged that NATO’s commitment to help Ukraine win the war was “far less than 100 per cent,” and that it was “shocking” that some of NATO members continued to buy Russian oil.
Washington’s change from penalising India unilaterally, without any qualms, and calling for a united NATO front on China and Russia reflects the vastly different scales and stakes involved. While it was easy to take a punitive action against New Delhi, forcing Moscow and Beijing to fall in line, and break their bilateral economic links necessitates a broader multilateral and global coalition to share costs, maintain political cover and amplify pressure.
Despite its recent growth rates, and becoming the fourth largest economy, India’s economic strength is small relative to China’s GDP of $18.7 trillion. Russia too has a large economy, $2.2 trillion, although it is smaller than India’s. So, a single-country tariff on India carried minimal global risks, and resulted in high leverage back home. This explains why India, which has the full support of Russia, has decided to move closer to China and Japan, thereby extending its economic and business grouping in Asia.
China’s integrated supply chains and large domestic consumer market can prove to be counters in case of a standalone US tariff, which may further stoke inflationary pressures in America, and possible disruptions in existing business models of the US’ businesses. China’s export basket is wider, and the US depends on the former for crucial raw materials, components and minerals.
Hence, it is crucial that to tackle a powerful economy like China, a united transatlantic front is required to dilute the potential risks of retaliatory price shocks or supply-chain disruptions. To take on the dragon, Lion King Trump needs the help of other large animals in Europe. This will help the collective group to synchronise sanctions so that the pain of the lost Russian energy imports or Chinese exports are shared among the members. A joint action will boost both diplomatic legitimacy and bargaining power for the White House.
European leaders are weighing the economic fallout. Prolonged collective tariffs on China may accelerate the global de-coupling, or China+1 strategy, which became fashionable after the pandemic. But even as this time-consuming mission takes shape, Beijing can deepen ties with Moscow via new products, investments and financial mechanisms. As mentioned earlier, high tariffs on China can exacerbate inflation across the globe, and strain existing supply chains, amid energy transitions. Several European nations, like France, are facing public backlash over sliding economies.
Reacting to the prospect of NATO joining hands with the US, China’s foreign-ministry spokesman, Wang Yi, dismissed it as “illogical” and warned the US against “economic coercion.” Beijing framed the proposal as an escalation that would “undermine global trade stability,” and vowed to “take necessary measures” against punitive levies. Right now, it is a three-way war of words between the US and NATO, China and NATO, and China and America.
Let us not forget that even today, several NATO members are among Russia’s top fossil-fuel buyers. In August, reveals figures released by the Finland-based Centre for Research on Energy and Clean Air (CREA), China bought 47 per cent of Russia’s annual crude exports, followed by India (38 per cent), the EU (six per cent), and Türkiye (six per cent). When it came to LNG (Liquified Natural Gas) imports from Russia, the EU was the largest buyer at 50 per cent, followed by China (21 per cent) and Japan (18 per cent). In the case of Russia’s pipeline gas, the EU was again at the top, purchasing 35 per cent of the output, followed by China (30 per cent) and Türkiye (28 per cent).
India imported Euro 3.6 billion worth of products from Russia. Crude oil dominated the purchases (78 per cent; Euro 2.9 billion), followed by coal (14 per cent; Euro 510 million), and oil products (eight per cent; Euro 282 million). Media reports suggest it is possibly the right time for India to wean away from Russian oil for two reasons. One, the discount on crude purchases, which hovered at almost $10 a barrel a couple of years ago, have dwindled to $1 due to extra costs related to insurance and logistics. It is no longer a cheap affair.
Two, India’s potential losses due high US tariff, which may dwindle exports across sectors and segments, are much higher than the cost benefits from Russian oil. If New Delhi needs to make a purely economic-business decision, it can start buying American oil, which will be a tad expensive. In return, the US can reduce the 50 per cent tariff to maybe 15 per cent. In addition, the 200 per cent tariff it wishes to impose on pharma exports may be reversed.
Well, as you may realise, this global war is not about weapons. Yes, it is about trade and tariffs. But more importantly, it is about the flexing of economic-muscle and global influence. A newer form of war requires newer arts and science. Maybe one can take a few leaves from the teachings of Chinese philosopher-strategist, Sun Tzu, who wrote The Art of War. But one needs to apply them in the modern twenty-first century world with newer insights and perspectives.