Why Is Trump Targeting India with Tariffs? Raghuram Rajan Explains

Introduction: A Trade Weapon, Not Just Economics

The recent move by the Trump administration to impose steep tariffs on Indian imports has sparked wide debate. Former Reserve Bank of India Governor Raghuram Rajan believes these tariffs go beyond traditional trade disputes. According to him, they are part of a larger strategy where trade is being used as a weapon to project power, rather than just an economic adjustment tool.

Trade Deficit as a Justification

Rajan explains that Trump views trade deficits as a sign of exploitation, where other countries are believed to be “taking advantage” of the United States. Instead of acknowledging the competitive advantages of foreign producers, Trump uses tariffs as a way to rebalance trade relationships, often portraying them as measures to protect American workers.

Tariffs as a Source of Revenue

Another reason behind these tariffs, Rajan notes, is that they are seen as a form of taxation on outsiders. By placing tariffs on foreign goods, the administration generates revenue without directly taxing American citizens. This creates a perception of benefiting domestic policy while shifting the financial burden abroad.

A Display of Power and Coercion

Rajan highlights that these tariffs are not only about economics but also about signaling strength. Tariffs, in this sense, act as a form of coercion—forcing countries into negotiations under pressure. He compared it to negotiating with a “gun to your head,” emphasizing the aggressive stance behind such policies.

Why India Was Singled Out

While several countries continue to trade with Russia or enjoy favorable balances with the U.S., India has faced unusually high tariffs. Initially considered for parity with other Asian economies, India’s tariffs were raised sharply, particularly due to its ongoing purchases of discounted Russian oil. Rajan suggests that India has been targeted more severely than others for strategic reasons.

Energy Policy at the Center

A critical element in this tariff dispute is India’s decision to buy Russian oil. For Trump, these purchases undermine U.S. geopolitical strategies. Rajan stresses that India will need to weigh short-term energy cost benefits against long-term economic and diplomatic consequences.

The Need for Economic Diversification

Rajan warns that trade, investment, and finance are increasingly being weaponized globally. To safeguard its interests, India must reduce its dependence on any one country, diversify trade partners, and strengthen internal reforms to boost long-term growth. A focus on new markets, alternate supply chains, and job creation is essential for resilience.

Tariffs as a Double-Edged Sword

Interestingly, Rajan has also pointed out that such tariffs could backfire on the U.S. itself. Higher tariffs can lead to reduced consumer demand, supply chain disruptions, and higher prices for Americans. In this way, the aggressive use of tariffs could become a self-inflicted wound for the U.S. economy.

Opportunities for India Amid Disruption

Despite the challenges, Rajan believes India could turn this situation into an opportunity. As global trade flows shift, India has the chance to position itself as a strong alternative manufacturing hub. By embracing reforms, lowering its own tariffs, and attracting investment, India can emerge stronger in the global supply chain.

Conclusion: Beyond Trade Numbers

Trump’s tariffs on India are not simply about correcting trade imbalances—they are about power and leverage. As Raghuram Rajan emphasizes, India must treat this as a wake-up call. Strategic flexibility, economic diversification, and bold reforms are key to ensuring India’s long-term stability and global standing in a world where economics and geopolitics are deeply intertwined.