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Modi Appears to Cave to Trump, Agrees to Buy Venezuela Oil in Place of Russia’s, End Tariffs on US Agriculture

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Yours truly is not an expert on the subcontinent, so perhaps I am missing something critical. However, I am mystified over what looks like Modi knuckling under to Trump over his tariff threats. Modi’s concessions look even more unjustified given that the odds are good that the Supreme Court will nix Trump’s imposition of tariffs under the International Emergency Economic Powers Act of 1977. The Administration already lost to a challenge filed in the Court of International Trade that was affirmed by the appellate bench. The short version of the argument is that the statute requires that there be a bona fide emergency, and Trump’s desire to beat up other countries does not amount to one.

The Administration does have fallback routes for imposing tariffs, but they are much more limited in scope, level, and duration.1 India’s foreign minister Jaishankar is highly accomplished. So why didn’t India emulate Russia, act all negotiation-friendly but draw out the timetable by insisting that fine points be carefully memorialized, something the Trump Administration does not do at all well?

As we’ll unpack, even though Modi looks weak in giving in to Trump on Venezuela oil purchases, the practical impact is likely to be limited. But other elements, particularly allowing US Big Ag in to compete with India’s large population of farmers, are shockers. Perhaps as he is wont to do, Trump has misrepresented what Modi agreed to, forcing the Prime Minister into the awkward position of having to contradict Trump.

Some overviews, first from Economic Times of India, which highlights that no one is exactly sure what the deal is:

US President Donald Trump’s announcement of a trade deal with India has put agriculture at the center of attention as there is yet little clarity on what exactly has been agreed. In a Truth Social post, Trump said the deal would slash US tariffs on Indian goods to 18% from 50% in return for India halting Russian oil purchases, lowering trade barriers and committing to “BUY AMERICAN at a much higher level.” He added that India would buy more than $500 billion worth of U.S. energy, including coal, as well as technology — and agriculture products too.

Trump did not specify which agricultural products India would buy, in what quantities, or under what timelines. There was no indication of when the lower tariffs would kick in, no deadline for ending Russian oil purchases, and no clarity on the trade barriers that would be reduced. The White House had not issued a presidential proclamation or published a Federal Register notice yet, both legally required to make tariff changes effective. Agriculture has been flagged, but exact details have yet to come out….

The day after Trump’s announcement, US Secretary of Agriculture Brooke Rollins reinforced the White House’s narrative. In a post on X, Rollins said the new India–U.S. deal would export more American farm products to India’s “massive market,” lift prices and pump cash into rural America. She pointed to America’s $1.3 billion agricultural trade deficit with India in 2024 and said the deal would go a long way toward reducing it, calling it an “America First victory” for American farmers.

On the Indian side, however, the emphasis was notably different. Commerce Minister Piyush Goyal, in his own post on X, hailed the agreement as one that would unlock unprecedented opportunities for farmers, MSMEs, entrepreneurs and skilled workers, framing it around “Make in India for the world, Design in India for the world, and Innovate in India for the world.” He stressed that the deal would help India gain access to US technology, but did not highlight arge-scale agricultural imports from the US.

An aside: ;Trump again and again insists on including unachievable levels of foreign purchases and/or investments in his trade “deals”. They also seem to be so loosey-goosey as to be unenforceable. For instance, the EU agreed to invest $600 billion in the US, and soon admitted it could not deliver. It was the private sector that would have to commit funds and the EU could not compel that. So ignore the “$500 billion buy” part of Trump’s patter on his beautiful India agreement.

From Bloomberg in Trump’s Surprise Trade Deal With India Resets Fractured Ties:

The US will cut its levy on Indian goods to 18% from 25%, lower than most Asian peers, while an additional 25% punitive duty tied to purchases of Russian oil was scrapped. Trump said Modi had agreed to buy $500 billion of US goods, cut its tariffs to zero, and halt crude purchases from Russia, a key demand of the US president.

Aside from the new tariff rate, Modi didn’t confirm the details of the deal, and like Trump’s other trade announcements, much could change. Even so, the agreement was hailed by officials from both sides and cheered by investors….

The previous 50% US tariff rate, in place since August, had hurt India’s labor-intensive industries, undermined its appeal as a manufacturing and export hub, and soured ties between the two countries. India’s currency was Asia’s worst performer against the dollar last month, weighed down by concerns over the lack of a US trade deal.

Here in tourist-dependent Thailand where Indians are big visitors, the press had taken note of the weakness of the rupee, not just recent but longer-term lows. And it has indeed strengthened against major currencies thanks to the “deal.” The Financial Times headlined that the rupee scored its biggest one-day increase in seven years:

The Russia-hostile Financial Times focused on Modi conceding to Modi on the Russian oil front in Trump to slash India tariffs after Modi ‘agrees’ to stop buying Russian oil:

Donald Trump said the US would lower its tariffs on India to 18 per cent after Prime Minister Narendra Modi “agreed” to halt purchases of Russian oil, ending months of trade friction between the countries….

On Monday, US officials, including Washington’s new ambassador to New Delhi, Sergio Gor, indicated that since India had agreed to stop buying Russian oil, the punitive 25 per cent levies would be removed, bringing down the overall tariffs on the country from 50 to 18 per cent….

India bought just $41.5bn worth of goods from the US last year, he said, “so there’s no way it’s going up to $500bn, particularly when Trump is only talking about goods trade”, said Pratik Dattani, founder of the Bridge India think-tank.

He added that while India had already started to reduce oil purchases from Russia, they were unlikely to be eliminated entirely, given the country’s relationship with Moscow. India had become the biggest buyer of cheap seaborne Russian crude since the full-scale war in Ukraine started in 2022.

Kevin Walmsley, in his latest post, pointed out that the Venezuela crude that Trump had so proudly seized was suffering from a want of demand. From US traders struggling to find buyers for Venezuelan oil, as China shifts supply chain to Canada:

Following the US takeover of the Venezuelan oil industry, commodities trading firms were given contracts to market the crude to buyers across the world, including to China.

But Venezuelan crude oil is now being sold at far higher prices than before, with the profits routed through US companies and energy traders.

The higher prices have pushed Chinese refiners out of the market for the heavy crude from Venezuela, and they are shifting their orders to Canada, Russia, and Iran.

Canadian tar sands oil is more expensive than Venezuelan heavy sour, but is similar, and offers far shorter transit times and lower shipping costs.

India had repeatedly, indeed almost piously, insisted that its oil purchases were driven by national needs, and getting the best price was important, hence the attraction of Russian crude.

An additional issue for India is that it isn’t clear how many of its refineries can readily process the particularly heavy and sour Venezuela crude, My understanding is that Russian crude is medium heavy, so Venezuela’s oil would not be fungible for that. But it is going to take time to increase Venezuela’s output, even charitably assuming that happens, and so India may not wind up on the hook for all that much in the way of purchases.

Despite India’s currency and stock market welcoming the trade “deal” news, reactions on Twitter suggest ordinary Indians are much less happy:

So keep in mind that even if India cuts tariffs or other trade barriers to US agriculture only on some food categories, Modi will still have reneged on his promise to protect Indian farmers.

Finally, BRICS boosters should take note. Even though we have pointed out that the continued decline in US political and economic pawer was baked in, we have also repeatedly said that BRICS enthusiasts were way out over their skis. Even casual readings of BRICS declarations have shown that its members want to preserve major Western institutions such at the IMF, World Bank, and WTO, and also want to preserve trade and investment relations with the West.2 Despite very rough treatment by Trump, Modi has reaffirmed the importance of the US to India, and as important, pulled back from Russia with his commitment to further reduce oil purchases. The US made be fading but it is far from spent, and even powerful nations like India are acting accordingly.

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1 From a November post, on the impact of a Supreme Court loss:

Again, this whistling past the graveyard claim that Trump could use other trade powers ignore that they are much more limited. The two main fallbacks are the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962. The former allows the president to impose tariffs unilaterally of up to 15% for up to 150 days to address significant trade imbalances. That’s cold cheer when Trump average tariff now is 17.9% and when he’s imposed some of his tariffs on countries that run deficits with the US, such as Brazil, where Trump’s big reason was personal pique over Brazil’s refusal to cut incarcerated former president Bolsonaro some slack.

Under Section 232, Trump can invoke a national security risk, such as he has for aluminum and steel. But the Administration needs to have the Commerce Department conduct an investigation substantiating that claim in advance….

Now to some of the effects if Trump loses. Mind you, this list is not exhaustive.

Emasculation of Trump’s Hyper-Aggressive Foreign Policy

Tariff bullying and gaslighting has been, far and away, the biggest implement Trump has used in making threats and demand of other nations, including repeatedly punishing one-time close allies like Canada and Japan just so show who is boss. Confirming that these tariff threats are much more about shows of dominance than getting anything positive accomplished, former ambassador Chas Freeman has recounted that when other countries show up for the trade talks that Trump has forced on them, the US side has no proposals but demands, Mafia-shakedown-style, what they can offer. Nothing is committed to writing, which means the US side can and has retraded these verbal commitments (see the UK for one of several instances). And the US has also gotten its interlocutors to commit to multi-hundred-billion investment commitments, which (ex maybe the Saudis) are clearly not feasible, and the browbeaten country usually ‘fesses up to that in fairly short order.

But the impact may go beyond the loss of pawer. Trump relished the way he used tariffs to make national leaders grovel….

In theory, the Administration could go hat in hand to Congress to get approval for something approximating the current tariffs, say at current levels but denying Trump the power to change them willy-nilly. But with Trump’s popularity in polls plunging, consumers and small businesses unhappy with the tariffs, and the Republicans getting whacked with high profile and unexpected-in-severity election defeats, Congresscritters will not be kindly disposed towards bailing Trump out.

2 Consider also further evidence of a widely-discussed potential to BRICS solidification, which is India’s concern that BRICS will become a vehicle to further China’s economic dominance, in the lead OilPrice story, India Pours Over $10 Billion Into Rare Earths to Cut China Dependence.

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2 comments

  2. ChrisFromGA

    Given Trump’s history of lies, bluster, and fake deals, I think we have to at least consider the null hypothesis here.

    Namely, that there is no deal. Just a Truth Social post, and vague non-committal words from Modi.

    With nothing in writing, there really is nothing to analyze here other than words. And we know that Trump needs to show dominance, even if it’s only for a fleeting moment. Further circumstantial evidence that this is all a lie is the EU-India trade deal just announced last week.

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