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US tariff war, Russian oil, and India’s balancing act
Articles- Sep 15,25
The ongoing tariff war and India’s purchase of Russian oil highlight global trade complexities, sanctions, and shifting alliances. In this article, R Jayaraman analyses how these dynamics impact India, the US, and global markets.
For the last three months, at least, the purchase of oil by India from Russia has been in the news for all the wrong reasons. If at all, it is a story of how a country, at the receiving end of NATO power and European anger, has tried to stay afloat, in spite of the many sanctions, the number and terms of which have become blurred. It is doubtful if even the leviers of these sanctions still remember the fine print. Issuing so many sanctions, one after another, is a tricky game and the sanctioners need to be careful, else the scope for finding new areas for sanctions could get very narrow.
Three years back, NATO armed Ukraine with money and weapons, and supported the offensive against Russia, mainly as a defensive action. That has been going on, and millions of lives have been lost. The war has also brought about many changes in the way Europe and the US work together, after WW II, in a war theatre in Europe. A protracted conflict, like the Vietnam war, both the wars have seen a deep involvement of the US. While, on the battlefield, Russia has been able to win over territories, Ukraine has been able to continue to fight due to the supply of weapons and funds by NATO countries. During the Biden era, the US funded the war to a good extent, but Trump has different views, and wants Europe to play a bigger role.
Unlike the Vietnam war, this war has seen an increased use of sanctions levied by the US/EU combine. Led by the US, of late, EU has also joined the sanction bandwagon, surprisingly. All the old colonialists have banded together to bash their old colonies. This has to change, and that can happen only if the old colonies become stronger. The only exception is the US, a former colony itself. It is a matter to note that this country has championed the ‘coercion by sanction’ route for all matters, even well beyond the nuclear expansion threats. In many cases it has had the desired effect, but, in the case of Russia, if one were to go by the Ruble – Dollar exchange rate, and other indicators, the effect has not been up to expectations. It is a very funny situation. The lack of ‘bite’ of the sanctions, to a great extent, is because the sanctioners themselves are buying so much from Russia. Even though there are sanctions on the purchase and usage of Russian oil, EU happily purchases the finished products from Russian oil at a competitive price.
To reverse this trend is difficult, but a beginning has been made by EU, by banning the ships carrying the Nayara refinery products. That’s a beginning, but more may be in the ’pipeline’. A new front has been opened by the US – the tariff route or TR. The TR is apparently a brainchild of one Navarro, a member of the kitchen cabinet of Trump. This Navarro is a quirky unit, in that, in the papers that he has authored about economics, he has quoted one Ron Vara, who has been revealed to be Navarro spelt differently! The TR route resonates a lot with other main ideas of trump – reduce the US sovereign debt, remain solvent, and close all ‘free rides’ to countries which have been riding the coat tails of the US for enriching their economies. The arguments on budget deficit and solvency are well founded, and deserve to be addressed by all the suppliers to the US. I think the TR is a good bet, it can help Trump achieve a part of his objectives, it can also put pressure on countries to become more efficient, which will only benefit the world as a whole, as these efforts will lead to addressing pressing issues like climate change, carbon footprint reduction and the achievements of the SDG’s.
However, the TR could be a double edged sword. For example, take the June 2025 numbers. US exports were 180B and imports were 268B. Assuming that the imports were under a regime of 10% average tariff, the imports would have been at 242 B USD base value. If now an average of 25% tariff is levied on this, the total import bill would be about 305 B. The US government has earned an extra 305-242-26 = 37 B. The US exports figure will also likely go up, as the exporters will sell at a higher price, to be called the ‘TR Correction’ (TRC), but this will lead to the US government getting more tax revenue by way of VAT, at 10%. If the TRC is 10% of the exports value, then the extra tax collection would be 18 B. Overall, the US government would be richer by 55 B. Not bad at all. But there are other consequences of this simple arithmetic.
First, unless the suppliers to the US reduce their costs through efficiencies, they are likely to be in rough waters. However, this is also a great incentive for efficiency improvement, the credit for which must go to the US. Greater use of Industry 4.0 techniques, reduction in carbon footprint, zero-emission and related matters will get greater attention and greater urgency. Whether the total benefits will be passed on to US consumers is another matter, but, in either case, both the parties will be winners. For example, if the suppliers reduce their costs and sell at the higher TR (we call this the TRP), then they benefit. If they decide to reduce their price below the TRP, then the US importers benefit. Thus, this need not be a zero-sum game; each, the importer and exporter, can share the benefits of the TR movement. This is exactly what Toyota did with its suppliers. Suppliers would incur a cost of 10, and sell to Toyota at 15. Toyota would send its sensei to the suppliers’ plants, reduce the cost to 8, reduce the selling price to Toyota to 14. In such a case, Toyota benefits by 1 and the supplier benefits by 1 in the increased margin.
Second, is the TRC. US exporters will have to find an optimal value which will allow them to maintain or increase their volumes and total sale values.
Third, and perhaps the most important driver of change will be the US consumer. US companies will have to improve their efficiencies to counter the adverse TR effect. Since the US is an innovation leader and technology giant, cost reductions will be achieved through Industry 4.0 transformation methods. These efforts will be greatly helped if the talent suppliers, like the GCC’s in India, become an integral part of the endeavour. And this is also the reason why the Russia Ukraine war should come to an end. Russia would then be able to work with the US and the rest of world, EU can buy their oil either directly from Russia or through the Russia – India route, and Ukraine would be able to rebuild itself through help from the EU and the US.
I think the TR is a big opportunity for all the involved parties to work at their ends, and bring about the next industrial revolution, where industrial growth happens in the Triple Bottom Line/ SDG guided ways. What one wishes is that Trump would not go about the TR is an adversarial way, as he has done. Rather, he should call for an international conference, put forth the message, a prosperous US is a good driver for the whole world. However, I think domestic compulsions and MAGA have made him take the path that he has. I have seen similar actions and programmes in the Indian industry, of which I have also been a part of, which ultimately resulted in all round future benefits, but handled in a totally different way.
About the author:
R Jayaraman is the Head, Capstone Projects, at Bhavan's S P Jain Institute of Management & Research (SPJIMR). He has worked in several capacities, including Tata Steel, for over 30 years. He has authored over 60 papers in academic and techno economic journals in India and abroad. Jayaraman is a qualified and trained Malcolm Baldrige and EFQM Business Model Lead Assessor.
Tariff War
Russian oil
India trade
US sanctions
global economy
NATO conflict
GST reforms
Trump policies
energy security
international trade
US Tariff War
R Jayaraman
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