As President Donald Trump and Russian premiere Vladimir Putin presented a greatly-thawed relationship during their Aug. 15 summit in Anchorage, Alaska, observers of the US Administration’s protracted tariffs war pondered whether the purchasing of Russian crude oil could still be used as a bargaining chip in negotiations with India and China.
Earlier this month, Trump announced a 25% tariff on goods from India, in addition to the 25% tariff he had already imposed, a punitive measure aimed at stopping India from buying Russian oil. China is currently the biggest purchaser of Russian oil, and India follows close behind.
Trump and members of his administration claim that India is profiting from the purchases by reselling the oil, and also indirectly supporting Russia’s war with Ukraine. Similar punitive tariffs have not yet been imposed on China, which buys 2 billion barrels of oil every day from Russia, and resells to European countries. Secretary of State Marco Rubio said European countries have expressed concern about punitive measures on China for its Russian oil purchases, fearing a restricted supply at higher prices.
Negotiating a Truce
China, however, could face tariffs as high as 145% if a deal is not negotiated by November, when a temporary truce ends. But that is an unlikely scenario, said Dr. Anil Deolalikar, professor of economics at UC Riverside and founding Dean Emeritus at UCR’s School of Public Policy.
“The US and China are extremely likely to negotiate a truce on this tariff because for both of them, these economies are highly intertwined and interdependent. The impact of very high tariffs on both of these economies will be catastrophic. And so there is a strong need for both of these countries to come to an understanding quickly,” said Deolalikar, speaking at an Aug. 15 American Community Media news briefing.
China’s exports to the U.S. last year were roughly about $450 billion. India’s exports of goods came in at $80 billion, but services — which are tariffs exempt — account for an additional $200 billion. Brazil’s exports to the US amount to about $40 billion: the country has been hit with 50% tariffs from the US, primarily for its prosecution of former President Jair Bolsonaro, a Trump ally.
Modi Will Not Capitulate
In a post-briefing interview with ACoM, Deolalikar noted that Indian Prime Minister Narendra Modi has not yet capitulated to Trump’s demands to stop buying Russian oil and is unlikely to do so.
When the Russia-Ukraine war began on Feb. 24, 2022, the Biden Administration — sensing a collapse in the global supply of oil — encouraged India to continue buying oil from Russia, stated Deolalikar. “It’s a complete reversal of US policy to now insist that India is supporting Russia in its war against Ukraine.”
Former Ambassador to India Eric Garcetti confirmed this tacit agreement between India and the US at the 2024 Conference on Diversity in International Affairs, held in Washington DC May 8-9. “India bought Russian oil because we wanted somebody to buy Russian oil at a price cap. That was not a violation or anything. It was actually the design of the policy because, as a commodity, we didn’t want the oil prices going up, and they fulfilled that,” said Garcetti.
Trump’s ‘Fickle’ Negotiations
Modi is under a lot of pressure not to give in, said Deolalikar. “He’s getting oil at a better price from Russia to support India’s consumers.” Furthermore, if India were to give in, Saudi Arabia and the US would not be able to fulfill its supply needs; India would likely have to turn to Iran, another country under sanctions. And the prices of crude oil would dramatically escalate.
”India has lowered many of its tariffs, but will not give in on Russian oil,” said the professor. He noted that Trump has been “fickle” in his tariffs negotiations and may remove the 25% penalty, regardless of whether India continues to buy Russian oil.
“It’s difficult to know exactly how the tariffs are going to impact these economies without knowing where the tariffs will eventually end up. These tariffs, have been on again, off again, they have been adjusted up and down over these past four months. And so one has to take the impact of tariffs on these economies with a grain of salt, because we don’t quite know where the tariffs will eventually end up,” said Deolalikar.
China’s exports to the US constitute less than 2% of its GDP. And Trump has exempted many electronic goods — such as I-phones, 75% of which are made in China — from tariffs. But, cautioned Deolalikar, if the heavy tariffs do take effect, the Chinese economy will still severely be impacted. “They are not quite in a recession, but compared to their growth over the last 20 years, the Chinese economy has slowed down a lot.”
BRICS Will Form United Front
Trump’s tariffs are bringing emerging economies closer together to put up a united front, said Deolalikar. Modi has announced plans to visit China for the first time in seven years next month. And he met with Brazil’s President, Luiz Inácio Lula da Silva on July 8.
”And so I think we are going to see all of these countries, the BRICS countries, come even closer together, which is against the long-term interests of the United States. In fact, there was a communique recently about how India, China and Brazil are together planning a three-way meeting of their leaders sometime within the next two months. So you’re going to see this happen. The BRICS are going to come closer together and try to increase trade among themselves,” said Deolalikar.
